With the variable capital balances method (method 1) of accounting for partnership equity, the general journal entry to record interest on capital is:
A) DR Profit distribution account; CR Partner's capital accounts.
B) DR Profit or loss summary account; CR Partner's capital accounts.
C) DR Profit distribution account; CR Partner's retained earnings accounts.
D) DR Profit or loss summary account; CR Partner's retained earnings accounts.

Question

Quizplus · Accepted Answer

Interest on capital is an expense to the partnership and is recorded in the Profit or Loss Summary account. The credit is to the partners' capital accounts because interest on capital increases the partners' equity in the partnership.

With the Variable Capital Balances Method (Method 1) of Accounting