How to Record a Loan from a Friend

The business receives a loan of £10,000 from a friend of the owner. The money is paid direct to the bank account of the business. It is important to understand that although the money is from a friend of the owner the loan is to the business.

How to Record a Loan

To record a loan, the accounting records will show the following bookkeeping entries when the business receives the loan:

Record a Loan Journal Entry
Account Debit Credit
Bank Account 10,000
Loan 10,000
Total 10,000 10,000

Record a Loan – Bookkeeping Entries Explained

Debit – What came into the business
Cash came into the business bank account from the friend of the owner.

Credit – What went out of the business
The business now has a liability to repay the loan on the due date.

The Accounting Equation

The Accounting Equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities of the business This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.

Record a Loan – Accounting Equation
Assets = Liabilities + Capital
Bank Current Account = Loan + None
10,000 = 10,000 + 0

A separate loan account should be established in the balance sheet for each loan. The amount recorded is termed the loan principal.

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How to Record a Loan from a Friend November 6th, 2016Team

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