Journal Entry for Loan taken from a Person

Loan from a person is the loan that company receives from individual person besides a bank or other entities.

A loan is a sum of money that is given to someone with the promise to pay it back in the future. The terms of the loan will vary depending on the agreement between the lender and borrower. It usually includes an interest rate and repayment schedule and maturity date. Loans can be used for a variety of purposes, including business expenses, education, or personal purposes.

There are several different types of loans, including secured and unsecured loans, fixed-rate and variable-rate loans, and business loans. Each type of loan has its own advantages and disadvantages, so it is important to choose the right one.

Secured loans are backed by collateral, which can be used to repay the loan if the borrower default. This type of loan is typically easier to obtain than an unsecured loan, but it can put the assets at risk if the borrower is unable to repay the debt.

Unsecured loans are not backed by collateral and are often more difficult to obtain. This type of loan often has a higher interest rate because it is riskier for the lender.

Fixed-rate loans have an interest rate that remains the same throughout the life of the loan, while variable-rate loans have an interest rate that can fluctuate. Fixed-rate loans offer stability and predictability, but they may not be available if you have bad credit. Variable-rate loans may be more expensive in the long run, but they can be a good option if you’re looking for a lower monthly payment.

Business loans are designed specifically for business purposes and typically have different terms and conditions than other types of loans. These loans can be used to finance start-ups, expand businesses, or purchase equipment and inventory.

A loan from a person has also treated the same way as a loan from bank or other company. It will be classified as the current or non-current liability base on the term of loan. Most of the time, the loan will last more than a year which leads to a non-current liability.

Journal Entry for Loan from a Person

The company needs to record cash received and debt when receiving loans from the other parties.

The journal entry is debiting cash and credit debt.

The debt can long term or short-term debt, it depends on the term and condition of the loan.

Example

Company ABC has borrowed the cash from one of the business partners. The loan amount is $ 200,000 with a term of 5 years. It is a private loan as it is not a loan from the company or other entities. Please prepare a journal entry for a loan received from a person.

ABC has received a loan from a person who is not representing the bank or any entity.

The journal entry is debiting cash $ 200,000 and credit long-term debt $ 200,000.