Bank granted a 10000$ nine months loan at 6% per year. How do we make Tat in journal entry.
To make a journal entry for a loan, follow these steps:
1. Identify the accounts involved:
- Loan Payable: This is a liability account that represents the amount owed to the bank.
- Cash: This is an asset account that records the amount of money received from the bank.
2. Determine the loan amount and loan duration:
In this case, the loan amount is $10,000, and the loan duration is nine months.
3. Calculate the interest expense:
Multiply the loan amount by the annual interest rate (6%) to find the annual interest expense: $10,000 * 6% = $600.
Then, calculate the interest expense for nine months: ($600 / 12) * 9 = $450.
4. Determine the repayment terms:
Find out how the loan will be repaid. Typically, loan payments are made in monthly installments, including both principal and interest.
5. Record the journal entry:
On the loan disbursement date, the journal entry would be as follows:
Loan Payable (Liability) $10,000
Cash (Asset) $9,550 (loan amount minus interest)
This entry records the receipt of $9,550 cash and the creation of a $10,000 loan payable liability.
Each month, when you make a loan payment, you would record the following journal entry:
Loan Payable (Liability) $450 (interest portion of payment)
Cash (Asset) $550 (payment minus interest)
This entry reduces the loan payable by $450 (representing the interest portion) and reduces cash by $550.
Ensure that you adjust the journal entries according to your specific accounting system and practices.