Question : Where is Interest on drawings shown in the final accounts of the firm?
Option 1: Debit side of profit and loss Appropriation Account.
Option 2: Credit side of profit and loss Appropriation Account.
Option 3: Credit side of profit and loss Account.
Option 4: Debit side of capital or current account only.
Correct Answer: Credit side of profit and loss Appropriation Account.
Solution : Answer = Credit side of profit and loss Appropriation Account .
Interest on drawings is shown in the final accounts of the firm in the
Credit side of the Profit and Loss Appropriation Account.
This is because interest in drawings is an income for the business and an expense for the partners. This transaction credits the Profit and Loss Appropriation Account with interest on drawings, indicating the business's generated income. Simultaneously, it debits the Drawings account with an equal amount, denoting the partners' incurred expense.
Hence, the correct option is 2.
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