Learning Materials For Accounting, Management , Finance And Economics.

Monday, October 3, 2011

Partners' Drawing Accounts With Interest On Drawing

Whenever partners withdrew money from the partnership firm for their private purpose it could be termed as drawings. The drawings could be of following nature:

1. Drawings against salary or commission
2. Drawings against interest on capital
3. Drawing against share of profits etc.

It should be noted that the provisions of drawings must be laid down in the partnership deed. When any partner withdraws money then that amount will be debited to his/her drawings account or current account and is credited to cash/bank account. To close the partners drawing account, they are transferred to partners capital account or partners current account at the end of the year by passing the following entry:

Fluctuating Capital Method
Partners' capital A/C................Dr.
To Partners drawings A/C

Fixed Capital Method
Partners' current A/C...............Dr.
To partners' drawings A/C

Interest On Drawings

Interest on drawing is an income of the partnership firm and is credited to profit and loss appropriation account.
On charging interest on drawings
Partners' capital A/C...................Dr.
To interest on drawings A/C

To close the interest on drawings
Interest on drawings A/C......................Dr.
To profit and loss appropriation A/C