Accounting and Journal Entry for Loan Taken From a Bank

Journal Entry for Loan Taken From a Bank

Banks and NBFCs are an integral part of an economy as they act as a support for companies by providing them additional cash leverage in the form of loans. Such a loan is shown as a liability in the books of the company. Following is the journal entry for loan taken from a bank;

*Assuming that the money was deposited directly in the firm’s bank.

Traditional Rules Applied

Bank Account (Personal) – Debit the Receiver

Loan Account (Personal) – Credit the Giver

Loan received from a bank may be payable in short-term or long-term depending on the terms set by the bank. The repayment of loan depends on the schedule agreed upon between both parties. A short-term loan is categorized as a current liability whereas a long-term loan is capitalized and classified as a long-term liability.

Example of Loan Received from a Bank

Loan received via direct credit from ABC Bank for 1,00,000 for new machinery. Show journal entry for this loan taken from a bank.

(Loan received from ABC Bank for new machinery)

Impact on Accounting Equation

As per the accounting equation, Total Assets of a company are the sum of its Total Capital and Total Liabilities.

Assets = Capital + Liabilities

In the aforementioned example, total assets of the company increased by a hundred thousand and simultaneously their liabilities grew by the same amount. 

The example above doesn’t have any impact on the equity of the company.

Related Topic – Journal Entry for Loan Payment

Loans in Financial Statements

Procuring a loan means acquiring a liability, it is an obligation for the business which is supposed to be repaid. Long-Term loans are shown on the liability side of a balance sheet.

Short Quiz for Self-Evaluation

>Read What is a Contra Liability?