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| Interest on Capital Journal Entry |
When a business owner contributes capital in business, Then he would be eligible to receive interest on his capital.
Journal Entry for Interest on Capital
Interest Expense Account Debit
Owner's Capital Account Credit
- The "Interest Expense" account is debited because of the cost of providing interest on the capital.
- The "Owner's Capital" account is credited because of an increase in the owner's equity due to the interest earned.
The above journal entry represents the recognition interest expense and the increase in the owner's capital by the same amount. Note that the point decision to pay interest on capital is based on the partnership or Business Agreement i.e. partners ratio.
