Treatment of Interest on Drawings in Partnerships

Steps:

• Interest on drawings charges partners for excess withdrawals, reducing their profit share.
• Record the charge by debiting the partner's current account to decrease their balance.
• Credit the appropriation account to reflect the adjustment in profit distribution.
• No entry affects the partner's capital account, as it relates to fixed contributions.

Why B is correct:

• Per partnership accounting rules, interest on drawings debits the partner's current account (charge) and credits the appropriation account (profit adjustment), with no capital impact.

Why the others are wrong:

• A: Reverses appropriation credit and current debit directions.
• C: Incorrectly credits capital account, which remains unaffected.
• D: Reverses both appropriation and current account entries.

Final answer: B