Interest on Capital in Partnerships with Separate Accounts

Steps:

• Identify interest on capital as a profit appropriation, not an expense.
• Debit the appropriation account to allocate profits.
• Credit the partner's current account, as capital accounts remain fixed for initial investments.
• Confirm the entry: Debit Appropriation, Credit X's current account.

Why B is correct:

• Partnership accounting rules credit interest on capital to the current account to track drawings and adjustments separately from fixed capital.

Why the others are wrong:

• A: Incorrectly credits capital account, which should not fluctuate with profit shares.
• C: Wrongly debits capital, reducing the fixed investment base.
• D: Improperly debits current account, which would decrease the partner's share instead of increasing it.

Final answer: B