Amount withdrawn from the business by the proprietor for his personal use is booked as drawings. Interest on drawings is treated as an income for the business and by the way it will reduce the capital of the owner. This is accounted like this in order to protect the capital in the business and to discourage drawings.

Interest on drawings will always be materialized on the credit side of Profit and Loss(P&L) account and on the liabilities side of the Balance Sheet by adding it to Drawings a/c which are eventually deducted from the capital.


Post a Comment