If interest on drawings is wrongly debited to Profit and Loss Appropriation Account what is the correct treatment?

Correct answer: It should be credited

Direct answer: Option A, it should be credited to the Profit and Loss Appropriation Account. Interest on drawings is charged to the partner because the partner has used firm resources personally. From the firm’s viewpoint, this is income or a recovery. Therefore the correct entry is: Partner’s Current or Capital Account Dr. To Profit and Loss Appropriation Account. If it was wrongly debited to the appropriation account, the debit must be reversed and the item must be credited there. Option A is correct. Option B is wrong because leaving the debit would understate the firm’s profit available for appropriation and reverse the normal treatment. Option C is wrong because interest on drawings is not a trading expense or purchase-related item. Option D is wrong because interest on capital is an amount allowed to partners, whereas interest on drawings is an amount charged to them. Memory cue: interest on capital is a debit of appropriation; interest on drawings is a credit of appropriation.