# Meaning of “Drawings” & “Interest on Drawings”

Partnership and partners are considered separate from each other. When partners withdraw money from business, for their personal use, then the term used for such withdrawal of money is known as **Drawings**. Since, drawings is a type of loan provided to the partner, the partner has to pay interest on the amount withdrawn from the firm , which is known as interest on drawings.

**Nature of the drawings**

The nature of the drawings can be :

1. Drawings against salary or commission

2. Drawings against interest on capital

3. Drawing against share of profits etc.

**Calculation of Interest on drawings **

Interest on drawings should be calculated from the date of the withdrawal of the amount.

In case the date of the withdrawal is not given, interest should be charged for six months on the total amount, because it is assumed that the drawings were made evenly throughout the year.

**Methods of Calculating Interest on drawings:**

There are two methods to calculate interest on drawings : –

**Simple Method:**Under this method, interest on drawings is calculated on each and every amount of drawing separately. It is calculated from the date of drawing till the close of accounting period. The formula to calculate interest is:

2.** Product Method:** In this method, the following steps are performed : –

- Calculate products of each drawing and its duration.
- Add different products
- Interest is calculated on the total of products so arrived at , for a period of one month. The formula to calculate interest under this method is:

**Interest on Monthly Drawings:**

In certain cases, drawings could be made on a monthly basis, either at the **beginning of every month, or middle of every month or end of every month. The interest under each of these cases is calculated as under : –**

**(I) Interest on Drawings – Drawings made in the beginning of every month : **

Average period for Interest on drawings =

**Question : –**

What will be the interest on drawings of A @ 15 % per annum if A withdrew Rs. 6,000 per month in the beginning of every month.

**Explanation : –**

Monthly drawings of A = 6,000

Total months in a year = 12

Total drawings made by A during the year = 6000 X 12

= 72,000

Average period for Interest on drawings =

= 6.5 Months

Interest on drawings = Annual Drawings X Rate of Interest X

= 72,000 X 15% X

=Rs. 5,850

**(II) Interest on Drawings -Drawings made at the end of every month:**

Average period for Interest on drawings =

**Question : –**

What will be the interest on drawings of A @ 10 % per annum if A withdrew Rs. 10,000 per month in the end of every month.

**Explanation : –**

Per month drawing of A = 10,000

Total months in a year = 12

Total drawings made by A during the year = 10,000 X 12

= 1,20,000

Average period for Interest on drawings =

= 5.5 Months

Interest on drawings = Annual drawings X Rate of interest X

= 1,20,000 X 10% X

=Rs. 5,500

**(III) Interest on Drawings – Drawings made at the mid of every month:**

Average period for Interest on drawings =

**Question : –**

What will be the interest on drawings of A @ 10 % per annum if A withdrew Rs. 10,000 per month in the middle of every month.

**Explanation : –**

Per month drawing of A = 10,000

Total months in a year = 12

Total drawings made by A during the year = 10,000 X 12

= 1,20,000

Average period for Interest on drawings =

= 6 Months

Interest on drawings = Annual Drawings X Rate of Interest X

= 1,20,000 X 10% X

=Rs. 6,000

**(IV) Interest on Drawings – Drawings made at the beginning of each quarter :**

Average period for Interest on drawings =

**Question : –**

What will be the interest on drawings of A @ 10 % per annum if A withdrew Rs. 10,000 in the beginning of each quarter during the year.

**Explanation : –**

Quarterly drawing of A = 10,000

Total number of quarters in a year = 4

Total months in a year = 12

Total drawings made by A during the year = 10,000 X 4

= 40,000

Average period for Interest on drawings =

= 7.5 Months

Interest on drawings = Annual Drawings X Rate of Interest X

= 40,000 X 10% X

=Rs. 2,500

**(V)Interest on Drawings – Drawings made at the end of each quarter:**

Average period for Interest on drawings =

**Question : –**

What will be the interest on drawings of A @ 10 % per annum if A withdrew Rs. 12,000 in the end of each quarter during the year.

**Explanation : –**

Quarterly drawing of A = 12,000

Total number of quarters in a year = 4

Total months in a year = 12

Total drawings made by A during the year = 12,000 X 4

= 48,000

Average period for Interest on drawings =

=

=

= 4.5 Months

Interest on drawings = Annual Drawings X Rate of Interest X

= 48,000 X 10% X

=Rs. 1,800

**(VI)Interest on Drawings – Drawings made at the mid of each quarter:**

Average period for Interest on drawings =

**Question : –**

What will be the interest on drawings of A @ 10 % per annum if A withdrew Rs. 10,000 in the middle of each quarter during the year.

**Explanation : –**

Per Quarter drawing of A = 10,000

Total number of quarters in a year = 4

Total months in a year = 12

Total drawings made by A during the year = 10,000 X 4

= 40,000

Average period for Interest on drawings =

=

=

= 6 Months

Interest on drawings = Annual Drawings X Rate of Interest X

= 40,000 X 10% X

=Rs. 2,000

**Learn More..**

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Chitra Ananthanarayanan says

Very useful and easy to understand, thank you