【accounting】 average drawing

Drawing is withdrawal from the business owner.

Interest charged on average drawing is the way to calculate the interest charge. As the drawing can be increased or decreased during the year, using average drawing amount is the best way to calculate the interest.

For example, opening balance of drawing is $100,000 and closing balance is $200,000. Interest rate is 10%.
Interest charged on average drawing
= ($100,000 + 200,000)/2 x 10%
=$15000