Interest on Drawing Journal Entry

Drawings is the term used in the context of partnership, it refers to that amount or goods which the partners has withdrawn from the business. Interest on drawing is levied on outstanding amount and it will be charged until the individual repay back to the company and therefore from the point of view of the business it is considered as income, the reason being that according to business entity concept, the company and owners of the firm are considered to be different person and not same and therefore any personal transaction of the owner is to be treated as transaction from outside party in the books of accounts. Given below is the journal entry for interest on drawings –

Drawing Account Dr

   To Interest on drawing account

As one can see that business will get income in the form of interest that is the reason why it is credited.

5 comments… add one
  • SH

    I have two doubts, actually; regarding interest on [1] capital and [2] interest on drawings.

    Why do we Credit “Capital” a/c in [1]? Isn’t capital decreasing?

    And

    Why do we Debit “Drawings” a/c in [2]?

    • bhupendra

      As interst on capital is an expenses of a firm that has be paid to shareholders, so it is debited.
      drawing is the amount withdrawn by shareholder for personal use, so it bears interest which is treated as income of a firm, so it is credited .

  • pawan kumar

    Why Drawing a/c is debited.. is it receiver.

  • Bibhuti Bhusan Swain

    if the proprietor withdraws money for domestic use and liable to pay interest on drawings .
    my view point is,
    (1) when withdraws :-
    drawings account/capital accont…..Dr.
    to cash a/c
    (reverse entry of introduce of cash)
    (2) incurs interest on drawings:-
    drawings account/capital a/c ….Dr
    to interest on drawings a/c
    (3) amount received from pro. against drawings:
    cash a/c…..Dr
    to drawings/ capital a/c
    (to cancel the previous entry )

    isn’t it ????

  • Himanshu wagh

    In above question why we don’t debit the cash a/c in interest on drawing question .
    And why not credit cash a/c on interest on capital question

Leave a Comment


Related pages


prepaid insurance journal entrywhat is the difference between a creditor and a debtoran autocratic leaderadvantages and disadvantages of buyback of sharesabsolute cost theoryautocratic leadership in businesstrial balance meaning in hindiadvantages and disadvantages of decentralised structureexample of market penetration pricing strategymixed economic system advantages and disadvantagesmerit and demerit of plasticfeatures of globalisationdifference between corporation and conglomeratefull form of fdimixed economy characteristicsexamples of inelastic demand productsadvantages of command economydisadvantage of oligopolylibitiesdefinition of substitute goods in economicsvertical analysis accountingfeatures of a capitalist economyassumption of capm modeldifferentiate between wholesaler and retailerdiminishing returns examplesassumptions of the capmunearned revenue in balance sheetsupplementary goods economicsmonopolistic economyreceived advance payment journal entrydisadvantages of privatisationadvantage and disadvantage of mixed economic systemmonopolistic competition is a market situation in whichadvantages of television advertisementadvantages and disadvantages of lifo and fifo in accountingdefinition of bearer chequedefine junk bondcapitalist society disadvantagesdifference between account receivable and account payableglobalization meritshorizontal analysis of a balance sheetprivatelizationfull form of bhel companyadvantages of a takeoverdifference between accounts receivable and payablefdi and fii meaningconglomerate growthbank loans advantages and disadvantagesskimming examplesescrow account meaningaccelerated method of depreciationfeatures of demat accountnon convertible preference sharesfifo method in cost accountingwhat is the full form of cpiwhat is the meaning of consigneecapitalist economy advantageswhat is full form of slrwhat is conglomerate mergersocial media advantages disadvantagesmeaning of consignerbarter trading systemdefine ficitiousdishonour of billadvantages and disadvantages of bank loandefine job costingwhat is conglomerate mergerretail vs wholesale definitionmerits and demerits of internetwhat is the meaning of fixed capitaldefine conglomerate mergerhorizontal takeoveroutstanding salary journal entryexample of market skimming pricingoutstanding salary journal entrydifference between monopoly and oligopolyexamples of unsystematic risk