Loans & drawings · Level: Basics
Journal entry: Repaying a loan
A repayment reduces the loan and the bank balance; no expense arises.
Worked example
We repay £3,000.00 of the loan by bank transfer.
Correct journal entry
Bank loan £3,000.00 / Bank £3,000.00
Debit
Bank loan£3,000.00
Credit
Bank£3,000.00
Why?
- Bank loan: liability decreases → debit
- Bank: asset decreases → credit
Typical mistake
Booking the repayment as interest expense.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
We repay £8,000.00 of the loan by bank transfer.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for repaying a loan?
Example: Bank loan £3,000.00 / Bank £3,000.00.
How do I recognise this case?
A repayment reduces the loan and the bank balance; no expense arises.
What is the typical mistake?
Booking the repayment as interest expense.