Why interest on loan is shown in profit and loss appropriation a/c? It should have been shown in profit and loss a/c as it is a charge against profit
Dear Student,
P/L Appropriation A/c is debited with items that are appropriation of profits. An appropriation of profit is the distribution of net profit. Interest on loan by partner is also an appropriation of profit. So,it is debited to profit and loss appropriation account.
In some cases, interest on loan is treated as a charge against profits. In those cases, it is shown in P/L A/c.
Regards
P/L Appropriation A/c is debited with items that are appropriation of profits. An appropriation of profit is the distribution of net profit. Interest on loan by partner is also an appropriation of profit. So,it is debited to profit and loss appropriation account.
In some cases, interest on loan is treated as a charge against profits. In those cases, it is shown in P/L A/c.
Regards