When interest on capital is allowed to partners, Interest on Capital Account is debited and Partner’s Capital Account is credited, it is called
When interest on capital is allowed to partners, Interest on Capital Account is debited and Partner’s Capital Account is credited, it is called
a) a transfer entry
b) a closing entry
c) an adjusting entry
d) an opening entry
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Ans – c)
The interest on capital is an expense of the firm towards the partners. It is not paid in cash to the partners. But in order to provide benefits to the partners. The capital of the partners is raised with the amount of Interest on capital.
Thus, the Interest on capital journal entries is just of an adjusting nature.
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