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What is journal entry for interest paid on bank loan?Please give answer with explanation?
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What is journal entry for interest paid on bank loan?Please give answe...
Journal Entry for Interest Paid on Bank Loan
The journal entry for interest paid on a bank loan is as follows:
- Debit: Interest Expense Account
- Credit: Bank Loan Account
Explanation
When a company borrows money from a bank, interest is charged on the loan amount. The interest paid on the loan is an expense for the company and needs to be recorded in the books of accounts. The above journal entry is used to record the interest paid on a bank loan.
The interest expense account is debited, and the bank loan account is credited. This means that the company's interest expense increases, and the bank loan balance decreases. The interest expense is an income statement account, and the bank loan is a balance sheet account.
The interest expense account is an expense account, and it is classified as a non-operating expense. It is shown on the income statement and reduces the company's net income. On the other hand, the bank loan account is a liability account, and it is shown on the balance sheet. The bank loan account represents the amount owed to the bank, and it decreases as the company makes payments towards the loan.
Example
Suppose a company borrows $50,000 from a bank at an interest rate of 10% per annum. The interest on the loan for the first year is $5,000. The journal entry to record the interest paid on the bank loan for the first year would be:
- Debit: Interest Expense Account - $5,000
- Credit: Bank Loan Account - $5,000
This entry would be made at the end of the year when the interest payment is made.
Community Answer
What is journal entry for interest paid on bank loan?Please give answe...
INTEREST A/C DR.
TO BANK A/C
(Being intrest paid to bank it is an expense for us)
TO BANK A/C
(Being intrest paid to bank it is an expense for us)
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What is journal entry for interest paid on bank loan?Please give answer with explanation?
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What is journal entry for interest paid on bank loan?Please give answer with explanation? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What is journal entry for interest paid on bank loan?Please give answer with explanation? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is journal entry for interest paid on bank loan?Please give answer with explanation?.
What is journal entry for interest paid on bank loan?Please give answer with explanation? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about What is journal entry for interest paid on bank loan?Please give answer with explanation? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is journal entry for interest paid on bank loan?Please give answer with explanation?.
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