In a partnership account; interest on drawings is?

A. debited to appropriation account
B. credited to appropriation account
C. treated as an expense in profit and loss account
D. recorded in the balance sheet as current assets

Correct Answer:

Option B – treated as an expense in profit and loss account

Explanation

Charging interest on drawings is a means of discouraging partners from withdrawing excessive amounts from the business. From this, it follows that interest on drawings is a debit entry in the partners’ current accounts and a credit entry in the Appropriation Account.