Accounting and Journal Entry for Loan Taken From a Bank


Journal Entry for Loan Taken From a Bank

Banks and NBFCs are an integral part of an economy as they act as a support for companies by providing them additional cash leverage in form of loans. Such a loan is shown as a liability in the books of the company. Following is the journal entry for loan taken from a bank;

Bank Account Debit Debit the increase in asset
 To Loan Account Credit Credit the increase in liability

*Assuming that the money was deposited directly in the firm’s bank.

Traditional Rules Applied

Bank Account (Personal) – Debit the Receiver

Loan Account (Personal) – Credit the Giver

Loan received from a bank may be payable in short-term or long-term depending on the terms set by the bank. The repayment of loan depends on the schedule agreed upon between both parties. A short-term loan is categorized as a current liability whereas a long-term loan is capitalized and classified as a long-term liability.

 

Example of Loan Received from a Bank

Loan received via direct credit from ABC Bank for 1,00,000 for new machinery. Show journal entry for this loan taken from a bank.

Bank A/C 1,00,000
 To Loan (Recvd. From ABC Bank) 1,00,000

(Loan received from ABC Bank for new machinery)

 

Impact on Accounting Equation

As per the accounting equation, Total Assets of a company are the sum of its Total Capital and Total Liabilities.

Assets = Capital + Liabilities

In the aforementioned example total assets of the company increased by a hundred thousand and simultaneously their liabilities grew by the same amount. 

Assets = Capital + Liabilities
1,00,000 = 0 + 1,00,000

The example above doesn’t have any impact on the equity of the company.

Related Topic – Journal Entry for Loan Payment

Loans in Financial Statements

Procuring a loan means acquiring a liability, it is an obligation for the business which is supposed to be repaid. Long-Term loans are shown on the liability side of a balance sheet.

Loans shown in the financial statements

 

>Read What is a Contra Liability?



 

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