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How is interest reward to capital?

Dear student Partners, being the investor of money in firm are entitled to return there on. Thus, Interest on capital is provided to them, as the interest on money invested by them. Basically partners are investing their money in the business and interest is given as reward of their investment in the form of capital in the same way we got interest from the bank on any kind of deposits. It is an income for the partner, therefore credited to his capital account and expense for the firm, therefore debited to Profit and Loss Appropriation Account. Regards

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When a firm earn profits then all the partner's are entitled int. on capital as a reward to all of them. Interest on capital is shown in profit and loss appropriation A/C.
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Intrest is paid to partners to compensate for lesser profits.
Since reward to capital is profit, therefore intrest is reward to capital.
Hope this helps!!!!
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