Accounting treatment

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

23 May 2012 OUR FIRM HAS TAKEN A LOAN OF RS 30,00,000/- FROM AXIS BANK TOWARDS PURCHASE OF NEW CAR.

AXIS BANK HAS ADVANCED THE LOAN AMOUNT OF RS. 29,06,306/- THROUGH DD ( AFTER DEDUCTING RS. 76694/- AS ADVANCE EMI AND RS. 17000/- TOWARDS LOAN PROCESSING CHARGES) DIRECTLY TO THE CAR SUPPLIER.

MY QUERY IS :

KINDLY ADVISE THE ACCOUNTING ENTRY i.e., WHAT ACCOUNTS ARE TO BE DEBITED AND CREDITED.

HOW TO PASS ENTRY FOR ADVANCE EMI OF RS. 76694/- AND BANK PROCESSING CHARGES OF 17000/-.

I HAVE GONE THROUGH SIMILAR EXAMPLE IN THIS WEBSITE BUT COULD NOT UNDERSTAND.

SO KINDLY ADVISE ME PROPERLY.

Querist : Anonymous

Querist : Anonymous (Querist)

20 June 2012 KINDLY RESOLVE THE ABOVE QUERY

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 Certainly! Let's go through the accounting entries for the loan transaction your firm has taken from Axis Bank for purchasing a new car, including the advance EMI and processing charges.

### 1. Initial Loan Disbursement:

When Axis Bank disburses the loan amount directly to the car supplier, the accounting entry would be:

- **For the Loan Disbursed (29,06,306):**
```
Car Supplier Account Dr 29,06,306
To Axis Bank Loan Account 29,06,306
```

Explanation:
- Debit the Car Supplier Account to reflect the receipt of the car from the supplier.
- Credit the Axis Bank Loan Account to record the loan amount disbursed by Axis Bank.

### 2. Advance EMI Deduction:

Axis Bank deducted Rs. 76,694 as advance EMI. This amount needs to be accounted for separately:

- **For Advance EMI Deducted:**
```
Axis Bank Loan Account Dr 76,694
To Bank Account (or Cash Account) 76,694
```

Explanation:
- Debit the Axis Bank Loan Account to reduce the loan liability by the amount of advance EMI deducted.
- Credit the Bank Account (or Cash Account) to reflect the reduction in cash due to the advance EMI payment.

### 3. Loan Processing Charges:

Axis Bank also deducted Rs. 17,000 towards loan processing charges. This amount is treated as an expense:

- **For Loan Processing Charges:**
```
Loan Processing Charges Expense Dr 17,000
To Bank Account (or Cash Account) 17,000
```

Explanation:
- Debit the Loan Processing Charges Expense account to recognize the expense incurred for processing the loan.
- Credit the Bank Account (or Cash Account) to reflect the payment made for the processing charges.

### Summary:

- **Initial Disbursement:** Debit Car Supplier Account and Credit Axis Bank Loan Account for Rs. 29,06,306.
- **Advance EMI Deduction:** Debit Axis Bank Loan Account and Credit Bank Account for Rs. 76,694.
- **Loan Processing Charges:** Debit Loan Processing Charges Expense and Credit Bank Account for Rs. 17,000.

These entries will properly record the loan disbursement, deduction of advance EMI, and payment of loan processing charges in your books of accounts. Adjust the accounts and amounts as per your specific accounting system and chart of accounts. If you have any further questions or need clarification, feel free to ask!

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