Whether loan is given or loan is taken, it is must to record it in books because given loan is our asset and taken loan is our liability. Moreover on the basis of outstanding balance, interest is calculated and it is paid by borrower to lender. So, for knowing actual balance of loan outstanding, we need to pass journal entries.
In the Books of Borrower
1. When loan is received by borrower
Bank Account Debit
Lender's Loan Account Credit
2. When Borrower is responsible for paying Interest on Loan
Interest Account Debit
Interest on Loan Payable Account Credit
3. When Borrower pays the interest to Lender
Interest on Loan Payable Account Debit
Bank Account Credit
4. When Borrower repays his loan.
(a) If there is no interest liability on loan.
Lender's Loan Account Debit
Bank Account Credit
(b) If there is any interest liability on loan
(i)
Interest on Loan Payable Account Debit
Lender's Loan Account Credit
(ii)
Lender's Loan Account Debit ( Principle + Payable Interest)
Bank Account Credit
In the Books of Lender
1. When loan is given by Lender
Borrower's Loan Account Debit
Bank Account Credit
( Logic : Cash though banks will come in the business which is our asset. It is increase of asset in the business. So, Bank account Debit . Lender's Loan is our liability. It is increase in existed liability, so this account will credit. )
2. When Lender has right to get interest on given loan
Interest on Loan Receivable Account Debit
Interest Account Credit
3. When Lender receives interest from borrower
Bank Account Debit
Interest on Loan Receivable Account Credit
4. When Borrower repays his loan.
(a) If there is no interest receivable on loan.
Bank Account Debit
Borrower's Loan Account Credit
(b) If there is any interest receivable on given loan
(i)
Borrower's Loan Account Debit
Interest on Loan Receivable Account Credit
(ii)
Bank Account Debit ( Principle + Receivable Interest)
Borrower's Loan Account Credit
Example
In the Books of Borrower
1. When loan is received by borrower
Bank Account Debit
Lender's Loan Account Credit
2. When Borrower is responsible for paying Interest on Loan
Interest Account Debit
Interest on Loan Payable Account Credit
3. When Borrower pays the interest to Lender
Interest on Loan Payable Account Debit
Bank Account Credit
4. When Borrower repays his loan.
(a) If there is no interest liability on loan.
Lender's Loan Account Debit
Bank Account Credit
(b) If there is any interest liability on loan
(i)
Interest on Loan Payable Account Debit
Lender's Loan Account Credit
(ii)
Lender's Loan Account Debit ( Principle + Payable Interest)
Bank Account Credit
In the Books of Lender
1. When loan is given by Lender
Borrower's Loan Account Debit
Bank Account Credit
( Logic : Cash though banks will come in the business which is our asset. It is increase of asset in the business. So, Bank account Debit . Lender's Loan is our liability. It is increase in existed liability, so this account will credit. )
2. When Lender has right to get interest on given loan
Interest on Loan Receivable Account Debit
Interest Account Credit
3. When Lender receives interest from borrower
Bank Account Debit
Interest on Loan Receivable Account Credit
4. When Borrower repays his loan.
(a) If there is no interest receivable on loan.
Bank Account Debit
Borrower's Loan Account Credit
(b) If there is any interest receivable on given loan
(i)
Borrower's Loan Account Debit
Interest on Loan Receivable Account Credit
(ii)
Bank Account Debit ( Principle + Receivable Interest)
Borrower's Loan Account Credit
Example
What is the journal entry of when a businessman started his business with loan
ReplyDeleteWhat is meant by intrest on loan
ReplyDeleteinterest on loan is expenses to a borrower and income to a lender.
DeleteAmit started a business with 2000000
ReplyDeletePurchased gold worth 3000000 from Balakrishna Jewellers
Took a loan of 2800000 from Manappuram using gold as collatteral
Sale goods to Shivani 3500000
Shivani paid whole amount to Manipuram and make our gold free
Pls tell me journal entry for lent to rohan
ReplyDelete