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:
Example: ₹10,000 was taken as a loan from the bank.
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.
ii. Journal Entry: (On payment of interest)
Example: Interest due ₹500 on loan taken is paid.
C. Interest paid to bank/person on the loan:
In this case, only a single entry is passed because interest is directly paid.
Example: Interest of ₹500 has been paid to the bank on the loan taken.
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