PRC-1 · Chapter 10 · Question 86 of 100
In a partnership, interest on a partner's capital balance is recorded in the Profit and Loss Appropriation account as:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) A deduction from the Net Profit.
Explanation
Interest on capital is an appropriation of profit. It rewards partners for their capital investment and is deducted from the net profit before the residual profit is shared among the partners.
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