Loan repaid Rs.20,000, being Rs.12,000 as interest and Rs.8,000 as principal amount.
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Answer:
Loan A/c Dr 8000
Interest on loan A/c Dr 12000
To Cash A/c 20000
Explanation:
Loan is a liability to business and thus when repaid it means reduction in the value of liability. Also interest on loan is an expense and thus debited. Loan account is always a borrowed sum which is expected to be returned along with an interest.
Loan A/c earlier was a credited when received and thus when it is paid back it will be debited.
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