Payment of Bank loan will effect_____a)Assets: Increase, Liabilities: Decreaseb)Assets: Decrease, Liabilities: Increasec)Assets: Decrease, Liabilities: Decreased)Assets: Increase, Liabilities: IncreaseCorrect answer is option 'C'. Can you explain this answer?

Question

Answer

C is the correct option because in payment of bank loan the asset will decrease means you have to pay the cash to the bank which is A variable asset and you are giving the cash and also it decreases liability because by paying your bank loan you are making yourself free from loss of your any assets which you have kept on mortgage

Answer

Bank loan is liability . so when we paid bankloan cash is going and liability is decreasing and cash is asset that's why as asset and liability both is decreasing

Answer

CASH GOES From assets side and liability to pay bank loan decreases by same amount

Answer

Cash will fall and liability will decrease

Answer

Option C

Answer

Cis the correct one

Answer

C is correct option

Answer

As we pay  loan to bankAssets decreases because cash and cash equivalents will go down Liability decreases because  there is a liability of bank loan in balance sheet but when we are paying it ..it decreases

Answer

Effect of Payment of Bank Loan on Assets and Liabilities

When a bank loan is repaid, it has an impact on both the assets and liabilities of a company. Let's analyze the effect in detail:

1. Assets:
- Decrease in Cash: When a loan is repaid, the borrower uses cash to make the payment. This leads to a decrease in the company's cash balance, which is an asset.
- Decrease in Bank Loan Receivable: The bank loan that was received by the company is considered an asset as it represents the amount owed to the company. When the loan is repaid, this asset decreases.

2. Liabilities:
- Decrease in Bank Loan Payable: The bank loan payable is a liability of the company as it represents the amount owed to the bank. When the loan is repaid, this liability decreases.
- Decrease in Interest Payable: Along with the loan amount, a company also pays interest on the loan. The interest payable is a liability, and when the loan is repaid, the interest payable decreases.

Summary:
- The payment of a bank loan has a dual effect on the company's financial position. It reduces both the company's assets and liabilities.
- The assets decrease because the cash used to repay the loan is reduced, and the bank loan receivable is no longer owed.
- The liabilities decrease because the bank loan payable is cleared, and the interest payable is reduced.

Example:
Let's consider a hypothetical scenario. ABC Company borrowed $50,000 from a bank and made monthly payments of $1,000 for 5 years to repay the loan.
- Initially, the company's cash balance is reduced by $50,000 to pay off the loan.
- The bank loan receivable, which was an asset, decreases by $50,000.
- The bank loan payable, which was a liability, decreases by $50,000.
- The interest payable, which was also a liability, decreases as the loan is repaid over time.

In conclusion, the payment of a bank loan affects the company's assets by decreasing cash and bank loan receivable. It also affects the liabilities by decreasing the bank loan payable and interest payable. Overall, it leads to a decrease in both the assets and liabilities of the company.

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