Loans & drawings · Level: Basics
Journal entry: Taking out a loan
The bank pays out the loan. The balance rises and a liability of the same amount arises.
Worked example
We take out a loan of £53,000.00. The bank pays the amount into our account.
Correct journal entry
Bank £53,000.00 / Bank loan £53,000.00
Debit
Bank£53,000.00
Credit
Bank loan£53,000.00
Why?
- Bank: asset increases → debit
- Bank loan: liability increases → credit
Typical mistake
Booking the loan as income.
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 take out a loan of £48,000.00. The bank pays the amount into our account.
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 taking out a loan?
Example: Bank £53,000.00 / Bank loan £53,000.00.
How do I recognise this case?
The bank pays out the loan. The balance rises and a liability of the same amount arises.
What is the typical mistake?
Booking the loan as income.