Interest on Loan (Outstanding)
Borrowings from banks, financial institutions and outsiders for business are called loans. Amount payable towards interest on loan is an expense for the business.
Example: The trial balance (31.3.2004) shows the following:
Bank loan @ 10% on 1.4.03 Rs. 4,00,000
Interest paid Rs. 14,000
Adjustment: Provide for interest on bank loan outstanding.
Adjusting Entry
|
Date |
Particulars | L.F | Debit Rs. |
Credit |
| 2004
Mar 31 |
Interest on Bank loan A/c Dr To Interest outstanding A/c (the interest on bank loan) |
26,000 |
26,000 |
Interest on loan outstanding will be shown
i) on the debit side of the Profit and Loss account by way of addition to the appropriate interest account and
ii) on the liability side of the Balance sheet by way of addition to the particular loan account.
Profit & Loss Account
for the year ending 31st March, 2004
Dr. Cr.
| Particulars | Rs. | Rs. | Particulars | Rs. | Rs. |
| To Interest on loan | 14,000 | ||||
| Add: Interest outstanding | 26,000 | ||||
| 40,000 |
Balance Sheet as on 31st March, 2004
| Liabilities | Rs. | Rs. | Assets | Rs. | Rs. |
| Bank loan @ 10% | 4,00,000 | ||||
| Add: Interest outstanding | 26,000 | ||||
| 4,26,000 |
Note: Interest on Bank loan @ 10% on Rs.4,00,000 for the year
= Rs.4,00,000 x 10/100 Rs. 40,000
Less: Interest paid as per Trial balance Rs. 14,000
Interest outstanding (Yet to be paid) Rs. 26,000