The interest on partners’ loans is?
-
A.
debited in current account -
B.
credited in profit and loss account -
C.
debited in profit and loss account -
D.
credited in current account
Correct Answer: Option C
Explanation
Interest on partners’ loan to the firm is a charge against profit. Such interest is to be allowed whether there are profit or not. So, interest as a partners’ loan is credited to his loan account and later on it is transferred to the debit of profit and loss account.