While making an adjustment entry in respect of interest on capital, credit is made to _______________.

Capital account

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Interest on capital account

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Profit & loss account

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Interest account

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Solution

The correct option is A Capital account
Interest on Capital has the following two effects on final accounts: It is an expense of the business, therefore; it will be recorded on the debit side of Profit and Loss Account. On the other hand, it is an income of the owner, therefore; it will be added in the Capital Account in Balance Sheet.

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