Firstly, Nancy, the question put up by you is a bit vague. As in it is difficult to identify whether you have an issue in understanding an accounting concept regarding a loan given or loan taken. Moving ahead, I think I can answer the question stated below in two ways Is Loan a Current Asset? Case 1Read more
Firstly, Nancy, the question put up by you is a bit vague. As in it is difficult to identify whether you have an issue in understanding an accounting concept regarding a loan given or loan taken.
Moving ahead, I think I can answer the question stated below in two ways
Is Loan a Current Asset?
Case 1: If a Loan is Given
Firstly you have to be clear whether the loan is a Loan granted or a Debt. When an entity lends a certain amount to another person based on certain conditions agreed by the parties at the time of entering into such contract. Then such a lender will recognise this transaction as a case of Loan Given.
Case 2: If a Loan is Taken
When an entity or a person owes a certain amount to another person or an entity or simply put up he has borrowed a certain sum from such another person based on certain conditions agreed at the time of entering into the contract such a transaction is a case of Loan Taken for the borrower.
To classify such loan as a Current Asset or a Current Liability, you will need to first identify the tenure of such loan given or taken i.e whether it’s a Short term Loan or a Long term Loan.
If you want to make an accurate classification pertaining to the head under which such loan would be presented it is very important to ascertain whether its a short term or a long term loan.
Short term Loan
It refers to a loan taken or given for a short duration of time roughly ranging between a month and a year these are generally repaid in monthly instalments. Such Short term Loans can be classified under the heads of Current Assets or Liabilities. If you are still unable to get the concept clear the below-mentioned table can be of great help –
Particulars | Classification |
Short term Loan Taken | Current Liability |
Short term Loan Given | Current Asset |
Long term Loan
A loan Taken or Given shall be said to be a Long term Debt or Long term Loan Given if such a loan is not due to be repaid or received within a year. It can be classified as a Non-Current Asset or a Liability.
Similarly, refer to the table below for a better understanding of this concept
Particulars | Classification |
Long term Loan Taken | Non-Current Liability |
Long term Loan Given | Non-Current Asset |
I am sure that after having a look at the image included below you will have a clear understanding of this concept-
Aastha Mehta
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Prepaid rent includes rent, therefore, you might be thinking that it is an expense, right? Clearing your assumption, that is incorrect. Prepaid rent is a current asset. In simple words, prepaid rent is recorded under current assets in the balance sheet because often businesses pay the rent before thRead more
Prepaid rent includes rent, therefore, you might be thinking that it is an expense, right? Clearing your assumption, that is incorrect. Prepaid rent is a current asset.
In simple words, prepaid rent is recorded under current assets in the balance sheet because often businesses pay the rent before the due date and it is utilized within a few months of its payment, usually within the same financial period. In the balance sheet, all the prepaid expenses that have not yet been consumed are recorded as a current asset about the time frame of one year.
Prepaid Rent
You can think of prepaid expenses as the costs that have been paid but are yet to be utilized. For example, prepaid rent, prepaid insurance, prepaid salaries, etc.
When you make the payment of rent before its due date it is known as prepaid rent. Rent is usually paid in advance for multiple reasons such as availing a discount, is due on the first day of the month, the landlord demands a prepayment, etc. For a better understanding of the concept have a look at the example given below.
Example
Company X signs an agreement to rent a warehouse for 1,000 per month from March for 7 months. The landlord demands for payment of the total amount in February. The journal entries to be recorded are as follows:
(being rent paid)
(being prepaid rent adjusted as it expires)
Note: The total amount of rent (1,000 x 7) is initially recorded in the balance sheet under current assets as prepaid rent. Each month the asset account is reduced by the amount utilized. You have to decrease the asset account by 1,000 (7,000/7) and record the expense of 1,000.
Prepaid rent as shown in the balance sheet
(Extract of Balance sheet)
Hope this helps.
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