Journal Entry for Loan Taken

A business can take an amount of money as a loan from a bank or outsider. In return, the business has to pay interest. 

A. Loan is taken from a bank or person:

Journal Entry: 

Example: ₹10,000 was taken as a loan from the bank.

Solution:

B. Interest charged by the bank or person and then paid: 

There can be a situation where the interest is charged first and then paid. There will be two Journal Entries in this case.

i. Journal Entry: (On charging of interest)

Example: Bank charged interest of ₹500 on loan taken.

Solution:

ii. Journal Entry: (On payment of interest)

Example: Interest due ₹500 on loan taken is paid.

Solution:

Or

C. Interest paid to bank/person on the loan: 

In this case, only a single entry is passed because interest is directly paid.

Journal Entry: 

Example: Interest of ₹500 has been paid to the bank on the loan taken.

Solution:

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