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What Is Interest On Drawings?

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Sajid Majeed Profile
Sajid Majeed answered
Interest on drawings is also charged like interest on capital, if it is provided in the partnership agreement. Since drawings are affected by partners often in irregular amounts and on varying dates, it is considered advisable to calculate interest on drawings to adjust the rights of partners. In many cases, however, drawings are made by mutual agreement and no interest is charged at all.

Where interest is charged it is usually calculated at fixed rate percent from the date of each drawing to the date the accounts are closed. If the dates on which the amounts are drawn are not given, interest is calculated on the whole amount on the assumption that the money was drawn evenly throughout the year. The amount of interest is debited to partners drawings accounts and is credited to the interest on drawings amount. At the close of the accounting period the interest on drawings accounts is closed by transfer to the profit and loss account.

It may, however, be noted that if the withdrawals are of uniform amount and are made at regular intervals, then interest on drawings can be calculated on the total of the amount drawn, for the average of the periods applicable to first and last installment. Therefore, if drawings are made at the beginning of each month, interest should be calculated on the whole amount for 6 and half months.
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Anonymous commented
Excellent answerr sir only thing iwould like to add is the intrest on drawing is an income for the business and hence creditd in the accounts

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