provide for interest on captial @ 5% per annum adjustement in preparation of fincial statements
Dear student
while preparing final accounts,
interest on capital shall be debited to profit and loss account and shown in liability side of balance sheet by way of addition to the capital as it will be credited to capital account.
Suppose capital is Rs.50000 and rate of interest on capital is 5%p.a. then interest =50000*5%=2500 shall be debited to profit& loss account. second treatment- in balance sheet capital will be 50000+2500=52500.
Entry will be
1.interest on capital A/c Dr. Rs.2500 To Capital A/c Rs.2500
2.Profit & loss A/c Dr. Rs.2500 To Interest on capital A/c.
Hope this information will clear your doubts.
Regards
while preparing final accounts,
interest on capital shall be debited to profit and loss account and shown in liability side of balance sheet by way of addition to the capital as it will be credited to capital account.
Suppose capital is Rs.50000 and rate of interest on capital is 5%p.a. then interest =50000*5%=2500 shall be debited to profit& loss account. second treatment- in balance sheet capital will be 50000+2500=52500.
Entry will be
1.interest on capital A/c Dr. Rs.2500 To Capital A/c Rs.2500
2.Profit & loss A/c Dr. Rs.2500 To Interest on capital A/c.
Hope this information will clear your doubts.
Regards