Day: October 14, 2024

Which of the following journals records interest earned on partners’ capital account balances?

Select ONE answer:

1. Debit Partners’ current accounts, Credit Profit and loss appropriation account
2. Debit Profit and loss appropriation account, Credit Partners’ current accounts
3. Debit Profit and loss appropriation account, Credit Cash at bank
4. Debit Profit and loss appropriation account, Credit Partners’ capital accounts

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Notcorrect
2. Correct == > Interest on partners’ capital is an appropriation of profit (debit appropriation account). Since partners have earned the money by their investment in the business, their current accounts should be credited with it (Option 4 would be theoretically possible, but most firms maintain current accounts separately from capital accounts to record such items).
3. Not correct
4. Not correct

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