Question

interest charged by bank treatment in final accounts

Answer 1

Interest debited by bank directly:- Normally, business firm maintains the current account with the bank from whom it takes loans. The bank automatically debits the account of firm with the amount of interest on a particular date as agreed by both the parties. In this case the entry of bank interest will be as under:-

Debit:-    Bank Interest A/c

Credit:-  Bank A/c

Interest paid in cash:- It rarely happens that the interest paid in cash but some time if the cheque of interest dishonors or there is no sufficient fund in the bank of account of business firm for payment of interest, in that case the interest is paid in cash. The entry of interest paid in cash will be as under:-

Debit:- Bank Interest A/c

Credit:- Cash A/c

Interest paid by cheque of other bank:- In case of shortage of funds the firm can pay the interest through the cheque of other bank. The entry of this type of transaction will be as under:-

Debit:-    Bank Interest A/c

Credit:-  Bank A/c

Bank Interest Paid on Monthly Installments:- When we take the loan from any bank and repay in installment then in that case, the interest is debited at the time of payment of installment. Following entry shall be passed at the time of repayment of loan in installment:-

Debit:-  Bank Loan Account

Debit :- Bank Interest on Loan Account

Credit:- Bank Account

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Answer 2

Interest debited by bank directly:- Normally, business firm maintains the current account with the bank from whom it takes loans. The bank automatically debits the account of firm with the amount of interest on a particular date as agreed by both the parties. In this case the entry of bank interest will be as under:-

Debit:-    Bank Interest A/c

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