Entry for bank loan

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This discussion clarifies the correct accounting treatment for a business bank loan. The consensus is that a single entry debiting the bank for the net disbursed amount and crediting the loan account for the gross amount, while debiting expenses (like processing fees) is acceptable. However, if there's a GST component on these expenses, it's advisable to bifurcate them to claim Input Tax Credit (ITC).

Suhasini Lad

Suhasini Lad (Querist)
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14 March 2022 Dear All,

We have taken a business loan from bank of 15,00,000. Bank has deducted Insurance Premiun Rs. 10,000/-, Processing Fees Rs. 35,400/- and documentation charges Rs.3,000/-. The net amount disbursed is Rs.14,51,600/-. I have debited the Bank with Rs. 14,51,600/-, debited the expenses into one as Processing fees Rs. 48400/- and credited Loan account with Rs. 15,00,000/-.

Is the entry correct or will i have to bifurcate the expenses as Insurance premium, documentation charges and processing fees, as i have taken all the expenses into one that is processing fees.

Thanking you,