Loan is a liability for business hence f has to pay . It is accounting entry where loan is credited a sits liability to show in books of accounts and when loan is paid loan account is debited to adjust the loan paid
Example Amar Traders took a loan of Rs 100000 .
Journal entry for the same will be\
When Loan is taken from Bank
Particular | Amount |
Bank A/c Dr | 100000 |
Â To loan A/c | Â 100000 |
Being loan taken from bank |
Next when its installment will be due and paid
Now Amar pay the installment of loan is 12000 which include interest on loan Rs 7000 and Loan Rs 5000. Every month like in first month he pay Rs 5000 loan amount and Rs 7000 interest on loan therefore he has to first make due entry and then paid the interest and loan amount.
Loan and its interest payable entry
Particular | Amount |
Loan A/c Dr. | 5000 |
Interest on loan A/c Dr. | 7000 |
Â Â To loan Payable A/c | Â Â Â Â Â 5000 |
Â Â To Interest on Loan payable A/c | Â Â Â Â Â Â 7000 |
(being on interest and loan due |
After making a due entry when loan and interest is paid then in the books of accounts payble interest on loan and loan is debited so they are adjusted and payment is made.
Particular | Amount |
loan Payable A/c | 5000 |
Interest on loan Payable A/c Dr. | 7000 |
Â Â Â Â Â Â Â Â Â Â Â To bank a/c | Â Â Â 12000 |
Â | Â |
(being on interest and loan due paid |
Another example of understanding of loan .
Another example of understanding of loan .
Suppose A ltd took loan from bank on 1 Dec 2020 Rs 100000 and interest payable Rs. 12,000 financialÂ year closed on 31 March 2021.
Case 1
If interest paid Rs 2000
Interest on Loan A/c Dr.Â Â 4000
Â Â Â To Bank A/cÂ Â 2000.
Â Â Â To Interest on Loan payable A/cÂ 2000
(Being interest on Loan paid)
Â
Case 2
If Interest paid Rs 8000
Interest paid Rs 8000
Under such condition our liability is to paid Rs 4000 but we
paid Rs 8000 means we paid loan in advance under such condition journal entry
for the same will be.
Particular | Amount |
Interest on loan Â A/c Dr. | 8000 |
Â Â Â Â To bank a/c | Â 8000 |
Â | Â |
Â | Â |
(being on interest and loan paid) |
Particular | Amount |
Prepaid Interest on loan Â A/c | 4000 |
Â Â Â Â To Interest on loan Â | Â 4000 |
Â Â Â Â Â Â Â Â (being on interest and | Â |
hereÂ
Case 3
If No Interest paid
Under such condition we have to make a entry of Rs 4000 in our books as interest payable
Particular | Amount |
Â Interest on loan Â A/c Dr. | 8000 |
Â Â Â Â To Interest on loan Â payble | Â 8000 |
Â Â Â Â Â Â Â Â (being on interest on loan payable) | Â |