A business is regarded as an economic unit distinct from the owner/owners and the amount invested by the owner/owners is regarded as liability of the business (business has borrowed this money from the owner). The money borrowed by a business from its owner / owners is known as capital: When a business borrows money from a bank or from a private individual, it pays interest on the borrowed money and this interest is considered as an expense of the business and is charged to profit and loss A/c. In the same way, the profit of the business is only justified, if interest on capital (interest on money borrowed from the owner) is also regarded as an expense of the business and is charged to profit and loss A/c along with other expenses. Moreover, interest on capital is regarded as an expense of the business because if the owner would invest, elsewhere an amount equal to the amount of capital invested in the business, he would have obviously earned some income i.e. investment in the Government securities or certificates etc. This is known as normal income or normal profit. The interest on capital (at normal rate) is charged to Profit and Loss A/c in order to see whether the business is earning extra profit over and above the normal profit. The owner will have to earn extra profit over and above the normal profit in order to cover un-certainties and risks involved in business. The more the risk, the more should be the amount of extra profit. This extra profit is, regarded as true profit of the business. Similarly, owner’s salary is also regarded as an expense of the business and is charged to Profit and Loss A/c.
INTEREST ON DRAWINGS:
The interest on drawings is exactly opposite of interest on capital when interest is allowed on capital and is regarded as an expense of the business, then it is very much logical that business should also charge the owner with interest on his drawings. This interest on drawings is revenue to the business and is credited to profit and loss A/c.
Benefits of bank cash ordering software
Remember the time when you are standing in a queue in bank. Yeah I know, it’s really frustrated to stand in a queue for long time and we all are busy in some works, so don’t have that much time for wasting.. 
Read
Atm machine management software
Our advanced science and technology offers us various machines to make our job easier and simpler. ATM is one of them stands for Automated Teller Machine and usually who use it only knows its tremendous benefits.. Read
Cash management software
Managing the cash is a very delicate job for every organization whether it is big or small. Number of functions comes under this broad term cash management and these functions help individuals to process payments and receipts in an effective manner.. Read
All about personal banking plano
One of the most preferred banking services at present in Plano and throughout the world is the online personal banking.. Read
Take control of your personal finances with plano bank
The Plano Bank caters to the smallest of small businesses to large conglomerates that can help individuals and businesses make smart money choices every day.. Read
Spanish conquest of the philippines
The Portuguese system of trade with Southeast Asia was first challenged by its larger Iberian neighbor, Spain. Having had a similar experience with centuries of Muslim rule.... Read
Calculation of missing figures
The figure of opening stock if not given can be ascertained by applying gross profit percentage to sales.. Read
Errors causing disagreement of trial balance
Suppose, goods sold to M. Asif Rs. 2000 are correctly recorded in the Sales Book, but erroneously debited twice in Mr. Asif Account in the ledger. For this error, the total of debit column of trial balance will be Rs. 12000 excess.. Read
Accrued expenses payable
The expenses that have been incurred during the current year (the services have been received during the current year). Read
Bad debt and provision for doubtful debts
No business concern wants to sell goods or services to a customer on credit basis who may prove unable or unwilling to pay his debts.. Read
