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Interest on drawings
Accountancy
In the firm's point of view, the capital employed by the owner is like a liability. So that the firm is paying interest on the capital to the owner. If we take some money from the firm, it is written as drawings. Drawings is like we are taking our money right. Then why we have to pay the interest on drawings to the firm's? And thank you for your kind help.
Answers (3)
Have you understood accounting concepts? In that there is one concept called Business entity concept , which makes a distinguish between the owner and business for accounting , so understand that drawings even though it is our money we have a separation between us and business and hence we pay interest on drawings as the capital is being reduced
Thread Starter
Vijay KYes mam I understood the entity concept of Accounting. But even though I know about it, this thing strikes me many times. But now I am very much clear about it. Thank you mam.
All the best ! Keep revising on regular basis and also clear all your basics and fundamentals at foundation level so that at later intermediate and final level these doubts will not come and you will understand better
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