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Interest on Capital

Partners’ contributions of capital to a business may be unequal and it’s only fair and sensible to allow interest on their capitals. The interest should be equivalent to the return they would have got had they invested their capital some where else and should be mutually agreed. The double entry would be:

Debit interest on capital account
capital account

The interest on capital is an expense item and is transferred to the profit and loss account.

See also the interest rate on capital contributed by each partner under partnership agreement.

Last Updated (Thursday, 28 October 2010 15:53)