Journal Entries for Borrowing Rs 4000 from a Bank
When you borrow money from a bank, it’s crucial to properly record the transaction in your accounting books. This article will guide you through the process of recording both the initial receipt of funds and subsequent repayment of a loan of Rs 4000. We will also provide examples of how to record this for different types of bank loans and cash withdrawals.
1. When the Loan is Received
Your first step is to record the receipt of the loan. This involves debiting the cash or bank account and crediting the loan payable account. This reflects the new liability created.
Journal Entry for Bank Loan Received
Date Account Title Debit Credit
Date Cash / Bank Rs 4000 Loan Payable Rs 4000Explanation:
You debit the Cash or Bank account because you are receiving cash from the bank. You credit the Bank Loan Payable account to acknowledge the liability incurred from borrowing.
Journal Entry for Cash Credit Loan or Working Capital Loan Received
Date Inventory / Expenses Rs 4000 Cash Credit Loan / Working Capital Loan Rs 40002. When the Loan is Repaid
When you start making repayments, you would typically make an entry like this:
Journal Entry for Repayment of Bank Loan
Date Bank Loan Payable Rs [Amount] Cash / Bank Rs [Amount]Explanation:
You debit the Bank Loan Payable account to reduce the liability and credit the Cash or Bank account to reflect the outflow of cash used for the repayment.
Journal Entry for Cash Withdrawal from the Bank
Recording a cash withdrawal from the bank involves the following:
Date Cash Rs 4000 Bank Rs 4000Explanation:
This entry reflects the movement of cash from the bank account to the business. The bank is the giver, and cash is recorded as an asset.
3. Golden Rules of Accounting
The rules of accounting help ensure that accounts are recorded accurately and consistently. Here is a brief overview of the three main types of accounts: