Adjustment of Interest on Drawings in Final Accounts (Financial Statements) (original) (raw)
Last Updated : 24 Apr, 2026
Drawings is the amount withdrawn by partners for their personal use from the business. Therefore, the firm charges a certain rate of interest for the amount withdrawn by partners. The interest on Drawings is considered an income for the firm and an expense for the partners.
**Adjustment:
**A. If Interest on Drawings is given outside the trial balance:
In such case, two effects will take place :-
- Interest on Drawings will be shown in the Cr.. side of the Profit & Loss A/c, being an income for the business.
- It will be added to the Drawings A/c and subtracted from the Capital A/c in the Liabilities side of the Balance Sheet.
**B. If Interest on Drawings is given Inside the trial balance:
In such a situation, Interest on Drawings will only be shown in the Cr. side of the Profit & Loss A/c, being an income for the business.
**Illustration:
The following adjustments were noted:
- Interest on Drawings is to be charged at 10% p.a. These Drawings have been made at the beginning of the year.
- Interest on capital @ 5% to be provided.
- Salary to be provided to proprietor i.e. 5000.
- Interest on loan to be provided at 6% p.a.
- Interest on Bank Deposits is to be provided @ 4%.
**Solution:
