In adjustments, what is the effect on total available profit when interest is charged on drawings?

Correct answer: Available profit increases

Interest charged on drawings is income of the firm. In accounting it is recorded by debiting the partner's current account and crediting the Interest on Drawings (or ultimately Profit & Loss) account, therefore increasing the total profit available for appropriation. Thus the correct answer is that available profit increases. The closest distractor "No effect" is wrong because the interest is recorded as income; "Profit decreases" is incorrect because this is not an expense for the firm but income. Exam tip: remember the sign — interest received by the firm on drawings increases profit, whereas interest paid by the firm would reduce profit.