Question

The accounting entry required when the bank advises that a bank loan has been approved __________.

• A. debit cash account credit bank loan account
• B. debit bank account credit cash account
• C. debit bank account credit bank loan account
• D. debit cash account credit bank account

Answer 1

Answer: (C)

debit bank account credit bank loan account

When loan is approved, amount of loan is transferred in the bank account. Since amount is received, bank balance increases and hence the assets increase. Also since the amount is received on account of the loan given by bank, liability has to be created to show the loan payable. Therefore, the entry shall be:

Bank A/c Dr. (Loan received increases in the bank balance, hence debited)

To Bank Loan A/c (Loan is to be repaid to bank, hence credited as liability)