Interest on a partner's loan is Rs 5,000. Where will it be recorded before profit distribution?

Correct answer: Expense in Profit and Loss Account

Interest on a partner’s loan is a charge against the profits of the firm, unless a specific accounting rule or agreement changes the treatment. It is paid for the use of money lent to the firm and is therefore an expense incurred in arriving at net profit. The firm records Rs 5,000 on the debit side of the Profit and Loss Account before the profit is transferred for appropriation among partners. The Profit and Loss Appropriation Account deals with the distribution of the profit already determined, such as partner salary, commission, interest on capital and the residual profit share. It is not a drawing or a reserve. Hence option A is correct.