Write journal entry for repaid
bank loan with interest
Answers
Explanation:
When the bank 'loans' money the entry on the banks books is:
Debit - Loan owed by customer
Credit - customers current account balance
When a debt is repaid the entry is simply the reverse:
Debit - customer current account balance
Credit - Loan owed by customer
This simple entry is the essence of how banks create and control almost all the money supply of a modern economy. The 'money' we all use in our bank accounts is a liability on the banks books. It is not cash the bank holds itself, thus saying the bank 'loans' money perpetuates the myth that the bank has something to loan. It does not - it creates a new book entry ex-nihilo.
Banks are restricted on the amount they can create by restrictions on the ratio of capital (eg share holders funds) to assets (i.e loans to customers and other banks) as specified in regulations (eg Basel).
Most of those running modern economies still do not understand this simple concept and continue to make policy errors due to it.