Accounting entry

S Jananikrishna (Learner) (218 Points)

16 March 2013  

Hi Friends,

Please clarify the doubt.

In the books, we have unsecured loan of Rs.10000/- and interest payable at 10%pa.

At the year end, entry is passed as follows for interest:

Interest   A/c Dr   10000

To Party Account                   9000

To TDS payable A/c            10000

When we pay interest to the party, to the extent of principal the party balance has to be reduced.Suppose, in the books we dont bifurgate interest and Principal.Now, to the extent interest paid, Party balance in the account has to be reudced or not ? Continuously from past three years, only the interest entry as above passed and Party balance get increased to the extent we accounted.Whether balance shown as per above calculation is correct or not?

Pls help it out.

Thanks in Advance.