Question

State two differences between interest on capital allowed to partners and interest on drawings charged to partners.

Answer 1

Basis	Interest on Capital	Interest on Drawings
Objective	It is allowed to compensate those partners who contribute capital in excess of what is required as per agreed profit sharing ratio.	It is charged to prevent one partner getting an advantage over other.
Recording	It is debited to the Profit and Loss Appropriation A/c and credited to the Partner’s Capital A/c.	It is credited to the Profit and Loss Appropriation A/c and debited to the Partner’s Capital A/c.