Journal Entry for Loan Repayment

Every organization whether it is a big multinational company or small local company requires loan at one point of time in order to finance its operations and majority of companies which take loan will repay it to lender. Let’s look at the journal entry which will be passed in the books of account of the company when company makes loan repayment –

Loan outstanding account                               Dr

  Interest on Loan outstanding account        Dr

To Cash

In the above entry since loan is outstanding it will be debited, so that in the books of account of the company it is closed and on any debt the company which has taken debt has to pay interest on debt and that is the reason why interest on loan is debited as it is an expense for the company (Remember the rule debit all the expenses and losses) and since cash has gone out of business cash account will be credited.

It can be better understood with the help of an example, Suppose ABC firm has taken loan of $ 500000 and interest rate is 10 percent and firm repays the loan exactly after 1 year then entry on loan repayment date will be

Loan outstanding a/c         Dr                     $ 500000

Interest on Loan a/c           Dr                     $ 50000

      To cash a/c                                                               $ 550000

As one can see from the above that on repayment of loan outstanding account is debited so as to close the loan account and interest on loan for the year is also debited and since cash has gone out of business it is credited with full amount of $ 550000. This was a simple example, in real life it is much more complex because companies take multiple loans and that too are not of same maturity and hence in such cases interest calculation and repayment calculation is quite complex.

0 comments… add one

Leave a Comment


Related pages


examples of current liabilitiesppt on fund flow statementfeatures of capitalist economyadvantages of marginal cost pricingwhat is slr crresop full formfullform of tdsdisadvantages of exportingspot rate meaningmonopoly oligopolyvertical analysis for balance sheetdifference between fdi and fiiwhat is the difference between a quota and a tarifftypes of monopolistic competitionexamples of unearned incomebenefits of autocracycapitalism and socialism differencescost concept accountingadvantages and disadvantages of owners capitaldisadvantages democracyderived demand and autonomous demanddisadvantages of venture capital financingadvantages of venture capitalistadvantages of command economyjournal entry unearned revenuemixed economy socialismadvantages of television advertisementdifference between capitalist economy and socialist economywhat is the difference between oligopoly and monopolyunearned rent adjusting entryadvantages of socialist economythe autocratic leaderelasticity of demand with examplesautocratic leadership theoryoligopoly disadvantagesswot analysis disadvantagesformula rocedividend wikipediawhat is the difference between accounting profit and economic profitdefine demand depositwhat is the cost concept in accountingdemonetized definitionnon diversifiable riskfdi full formlaf meaningpredetermine definitionadvantages and disadvantages of process costingadvantages of perfect competitiondisadvantages of mixed economydisadvantages of mergers and takeoversmeaning of floating exchange rateunearned fees journal entrye trading advantages and disadvantagesmeaning of escrow account in bankdupont identity formulacontingent liabilities exampleunqualified audit reportdefine derivatives in financejournal entry deferred revenueconsignor and consignee meaningdiscounting of bills meaningpayback analysis definitionadvantages and disadvantages of short term financingadvantages of conglomeratecheque deposit proceduresemi finished goods examplesdecentralization advantageswhat are some examples of durable and nondurable goodsmeaning of accrued interestdifference between consignor and consigneemeaning of inferior goodsexpense meaning in hindimeaning of capital formationthe materiality conceptwhat is the difference between accounts payable and bills payableskimming pricing strategyventure capital advantages and disadvantageswholesale vs retail definitionwhat is the difference between complementary and complimentaryadvantages and disadvantages of functional organizationtypes of monopolistic competitiona distinguishing feature of managerial accounting isbad debts entry