Page 77 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes The following general entries will be passed in the final 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.
8. For Bad Debts
Bad debts are irrecoverable debts from customers, during the course of the financial year.

Bad Debts Accounts Dr.
To Sundry Debtors Account
Bad Debts are deducted from the sundry debtors in the assets side of the Balance Sheet and
shown in the debt side of Profit and Loss Account.
From the following example, the treatment of the transaction could be easily understood.
March 1, 2006: Sale of goods to Mohan 3,000; time period to repay the dues is 30 days.
This transaction affects two different accounts viz, Personal A/c and Real A/c

(i) Personal A/c: Mohan, who is the buyer of the goods on credit is nothing but the receiver.
The relationship with Mohan should be maintained till the collection of dues of the credit
sales; which mainly revolves on the future relationship.
(ii) Real A/c: During the sale of goods to Mohan on credit led to movement of goods i.e.
movement of assets; between the firm and Mohan. It means that the goods are going out
of the firm due to sales made to Mohan.

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