Question

Negotiated a loan from Sunrise Bank for an amount of Rs. 30,000 which was granted at an interest of 12% per annum payable monthly. He paid Rs. 20,000 by cheque as rent advance to his landlord for the premises of the business covering period of 10 years. journal entries​

Answer 1

The journal entry for obtaining a loan would debit Cash/Bank and credit Loan Payable by the loan amount. For paying rent in advance, Prepaid Rent would be debited and Cash/Bank would be credited. Monthly interest is not recorded until incurred.

Step-by-step explanation:

The student has provided a scenario where a loan is negotiated and an advance rent payment is made. The subject involves journal entries for these financial transactions, which would be recorded by a business or individual. In a simplified format, the accounting equation and double-entry bookkeeping principles are used to make these entries.

For the loan from Sunrise Bank:

• Dr. Cash/Bank 30,000 (Debit the increase in assets)
• Cr. Loan Payable 30,000 (Credit the increase in liabilities)

For the rent advance payment:

• Dr. Prepaid Rent (Asset) 20,000
• Cr. Cash/Bank 20,000 (Decrease in asset as the money is paid out)

Note that the monthly payable interest is not recorded until it is actually incurred each month. When the interest is incurred, the journal entry would be:

• Dr. Interest Expense
• Cr. Interest Payable or Cash/Bank (depending on whether the interest is being accrued or paid)