(A) Loan Taken
When capital and cash are not sufficient, loan should be taken.
This loan may be for goods purchase, assets purchase or to pay operating expenses.
To take loan, security should be deposited.
Generally, there are two types of loan.
They are short-term loan and long-term loan.
Short-term loan is for maximum one year but long-term loan is for more than one year.
Short-term loan is bank overdraft; long-term loan is bank loan, debenture or bond.
Interest must be paid on loan either monthly, quarterly, half yearly or annually.
Loan Taken
Cash account |
Dr |
Cash received |
Increase in assets |
Bank account |
Dr |
Loan transferred into bank account |
Increase in assets |
To Loan account |
|
Loan taken (without name) |
Increase in liabilities |
To Loan from Mr A |
|
Loan taken (from person) |
Increase in liabilities |
To Loan from ABC Bank |
|
Loan taken (from financial institution) |
Increase in liabilities |
(Being- loan taken ………) |
|
|
|
Journal Entry
In the book of …………
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Cash account |
Dr |
|
xxxxx |
|
|
Bank account |
Dr |
|
xxxxx |
|
|
To Loan account |
|
|
|
xxxxx |
|
To Loan from Mr A |
|
|
|
xxxxx |
|
To Loan from ABC Bank |
|
|
|
xxxxx |
|
(Being- loan taken ………………………….) |
|
|
|
|
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Keep in Mind (KIM)
Loan is liabilities for person or organization. Therefore, loan is credited in journal entry. It is shown in liabilities side of balance sheet. Nowadays, financial institutions (bank, finance company, co-operative etc) provide loan by opening bank account. Interest on loan is payable with installment. And installment is sum of principal amount and interest. Installment may be monthly, quarterly, half yearly and annually. |
(B) Loan Given or Investment
Loan given is also known investment.
Excess money or profits are invested into other company.
Sometimes, a person gives loan on believable person without securities; but financial institution does not lend the loan without securities in SAARC countries.
Generally, these investments are made for two reasons; first is to earn income and second is to control-over another company.
Interest will be received on investment monthly or quarterly, half yearly or yearly.
Loan Given
Mr A’s account (loan given to Mr A) |
Dr |
Loan given to person |
Increase in assets |
XYZ Traders (loan given to XYZ Traders) |
Dr |
Loan given to firm |
Increase in assets |
Investment account |
Dr |
Invested in company |
Increase in assets |
To Cash account |
|
Loan given in cash |
Decrease in assets |
To Bank account |
|
Loan given by cheque |
Decrease in assets |
(Being- loan given to ……………………) |
|
|
|
Journal Entry
In the book of …………
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
|
Loan to Mr A |
Dr |
|
xxxxx |
|
|
Loan to ABC Traders |
Dr |
|
xxxxx |
|
|
To Cash account |
|
|
|
xxxxx |
|
To Bank account |
|
|
|
xxxxx |
|
(Being- loan taken ………………….) |
|
|
|
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 7A
The following information is given to you by Mr Sanjay:
(a) Loan taken from Mr Pitamber Rs 150,000.
(b) Loan taken from Capital Finance Ltd Rs 200,000 by opening bank account.
Required: Journal entry
SOLUTION:
Journal Entry for American Style
Date |
|
|
Debit $ |
Credit $ |
(a) |
Cash account |
|
150,000 |
|
|
To Loan from Pitamber account |
|
|
150,000 |
|
To record loan received from Mr Pitambar in cash |
|
|
|
|
|
|
|
|
Journal Entry for European Style
Date |
|
|
€ |
€ |
(b) |
Cash account |
Dr |
150,000 |
|
|
To Loan from Pitamber account |
|
|
150,000 |
|
To record loan received from Mr Pitambar in cash |
|
|
|
|
|
|
|
|
Journal Entries
In the book of Mr Sanjay
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
(a) |
Cash account |
Dr |
|
150,000 |
|
|
To Loan from Pitamber |
|
|
|
150,000 |
|
(Being- loan taken from Mr Pitamber) |
|
|
|
|
(b) |
Bank account |
Dr |
|
200,000 |
|
|
To Loan from Capital Finance Ltd |
|
|
|
200,000 |
|
(Being- loan taken from Capital Finance Ltd by |
|
|
|
|
|
opening bank account) |
|
|
|
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 7B
The following information is available to you by XYZ Traders:
2 January: 15% Loan taken from Mr Pawan Rs 100,000.
1 February: 12% Loan taken from City Bank Ltd Rs 300,000 by opening bank account.
Required: Journal entry
SOLUTION:
Journal Entries
In the book of XYZ Traders
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
Jan, 2 |
Cash account |
Dr |
|
100,000 |
|
|
To 15% Loan |
|
|
|
100,000 |
|
(Being- loan taken from Mr Pawan) |
|
|
|
|
Feb, 1 |
Bank account |
Dr |
|
300,000 |
|
|
To 12% Loan |
|
|
|
300,000 |
|
(Being- loan taken from City Bank by opening bank A/c) |
|
|
|
|
|
|
|
|
|
|
Keep in Mind (KIM)
Here: |
15% loan mean, we must pay 15% interest on 100,000 per year. |
12% loan mean, we must pay 12% interest on 300,000 per year. |
Some person or financial institution takes monthly interest. |
Financial institution takes interest with installment. |
Some person takes interest monthly and loan amount lump sum. |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 7C
The following information is given you by Ms Srijana:
(a) Loan given to Ms Babita Rs 50,000.
(b) Loan given to Sabina Fancy House Rs 80,000 by cheque.
Required: Journal entry
SOLUTION:
Journal Entries
In the book of Ms Srijana
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
(a) |
Ms Babita’s account |
Dr |
|
50,000 |
|
|
To Cash account |
|
|
|
50,000 |
|
(Being- loan given to Babita in cash) |
|
|
|
|
(b) |
Sabina Fancy House account |
Dr |
|
80,000 |
|
|
To Bank account |
|
|
|
80,000 |
|
(Being- loan given to Sabina Fancy House by cheque) |
|
|
|
|
|
|
|
|
|
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
PROBLEM: 7D
The following information is given you by SK Traders:
15 March Loan given to Mr Suraj Rs 30,000.
22 May Loan given to Kavita Concern Rs 50,000 by cheque.
28 June Invested Rs 150,000 in Nimbus Agro Ltd by cheque
Required: Journal entry
SOLUTION:
Journal Entries
In the book of SK Traders
Date |
Particulars |
|
LF |
Amount Dr |
Amount Cr |
15 March |
Ms Suraj’s account |
Dr |
|
30,000 |
|
|
To Cash account |
|
|
|
|
|
(Being- loan given to Suraj in cash) |
|
|
|
30,000 |
22 May |
Kavita Concern account |
Dr |
|
50,000 |
|
|
To Bank account |
|
|
|
50,000 |
|
(Being- loan given to Sabina Fancy House |
|
|
|
|
|
by cheque) |
|
|
|
|
28 June |
Investment account |
Dr |
|
150,000 |
|
|
To Bank account |
|
|
|
150,000 |
|
(Being- invested in Nimbus Agro Ltd by cheque) |
|
|
|
|
|
|
|
|
|
|
PROBLEMS AND ANSWERS |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 7 LOAN TAKEN
The following information is given to you by Mr Suraj:
5 Jan: Loan taken from Mr Dinesh Rs 50,000.
10 Feb: Loan taken from BC Co-operative Ltd Rs 200,000.
15 Mar: 15% Loan taken from Ms Ranjana Rs 100,000.
20 Apr: 12% Loan taken from NMC Bank Ltd Rs 3,00,000 by opening bank account.
Required: Journal entry
[Answer: *Do not calculate interest}
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =
Basic Problem: 8 LOAN GIVEN OR INVESTMENT
The following extracted information is given you by Ms Manju:
1 Jun, Loan given to Ms Isha Rs 20,000
5 Jul, Loan given to BC Furniture Rs 50,000 by cheque.
10 Aug, Loan given to Ms Sangita @ 24% interest Rs 30,000.
15 Sep, Loan given to Kavita Concern Rs 40,000 @ 18% interest by cheque.
25 Oct, Invested Rs 150,000 in 10% preference shares in AK Company Ltd by cheque.
Required: Journal entry
[Answer: *Do not calculate interest]
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