Page 160 - DCOM101_FINANCIAL_ACCOUNTING_I

Financial Accounting-I

Notes 5. For the Depreciation on Assets

Depreciation: The value of fixed assets diminishes gradually with their use for business
purposes. The following general entries will be passed:
Depreciation Account Dr.
To Relating Assets Account

Depreciation is subtracted from the relating assets in the assets side of the Balance Sheet
and disclosed in the debit side of Trading and Profit & Loss Account.

6. Interest on Capital and Drawings

Interest on Capital: The proprietor wants to calculate his profit after considering the interest
which he loses by investing his money in the fi rm.
Interest on Drawings: As business allows interest on capital it also charges interest on
drawings made by the proprietor. Interest so charged is an income for the business on one
hand and expense for the proprietor on the other hand.
The following general entries will be passed in the fi nal accounts:
(a) For Interest on Capital

Interest on Capital Account Dr.
To Capital Account
Interest on Capital is added to the capital of owner in the liabilities side of the Balance
Sheet and disclosed in the debit side of the Trading and Profit & Loss Account.

(b) For Interest on Drawings
Drawings Account Dr.
To Interest on Drawings Account
Interest on Drawings is subtracted from the amount of capital along with the

drawings and also shown in the credit side of Trading and Profit & Loss Account.
7. Interest on Loan and Investments
(a) For Interest on Loan Payable

Profit & Loss Account Dr.

To Interest on Loan Account
Interest on Loan payable is added to the amount of Loan in the liability side of the Balance

Sheet and also shown in the debit side of Profit & Loss Account.
(b) For Interest on Investment Receivable
Interest on Investment Account Dr.
To Profit & Loss Account

Interest on Investment Receivable is added to investment in the assets side of the Balance
Sheet and also shown in the credit side of Profit & Loss account.

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