Rectifying the Entry for Loan Payment

To rectify the incorrect entry for the loan payment, the following steps need to be taken:

Identify the Error
The error in the entry is that the interest component of Rs. 2000 has not been accounted for.

Make a Journal Entry
To rectify the error, a journal entry needs to be made. The entry should reflect the interest component that was not accounted for.

Debit: Bank Loan Account: Rs. 22000
Credit: Interest Expense Account: Rs. 2000
Credit: Bank Account: Rs. 20000

Explanation
The journal entry debits the Bank Loan Account with the full installment amount of Rs. 22000, but also credits the account with the interest component of Rs. 2000. This ensures that the Bank Loan Account is correctly adjusted for the installment payment.

The Interest Expense Account is credited with the interest component of Rs. 2000 that was not accounted for in the initial entry. This ensures that the interest expense is correctly accounted for in the books.

Finally, the Bank Account is credited with the actual amount paid, i.e. Rs. 20000. This ensures that the bank balance is correctly updated in the books.

Conclusion
By making the above journal entry, the error in the original entry is rectified and the books are updated with the correct information. It is important to ensure that all entries are accurately recorded to maintain accurate financial records.