The interest on partners’ loans is?

A. debited in current account
B. credited in profit and loss account
C. debited in profit and loss account
D. credited in current account

Correct Answer:

Option C – debited in profit and loss account

Explanation

Interest on partners’ loan to the firm is a charge against profit. Such interest is to be allowed whether there are profit or not. So, interest as a partners’ loan is credited to his loan account and later on it is transferred to the debit of profit and loss account.