Question

Need help recording transaction.

I have a business and took out a personal loan to keep my business a float. On 01/15/2020 the loan has a balance of 150k. My bank agrees to let me put this personal loan on the business and they buy out the other lender. This transaction is as follows:

Operating Account (Cash account/Asset): Debit of 150k (Because the bank gave me $150k cash)
Bank loan (Liability): Credit of 150k (Because the business now has a bank loan of $150k)

How do I know record the payout to the prior lender. If you recall above, the bank gave me 150k cash to pay the prior lender so I would credit cash for 150k because cash is going out. What would I debit? Because this was a personal loan that the business took on, I don't know what to debit?

The accounting system doesn't allow me to put in a beginning balance for the prior to loan to pay it out. What journal entries do I need to make?

Answer 1

When a Bank offers personal loan in order to finance for its business, such a loan will be considered as a cash credit given by Bank to the Business. Hence the Business will get a loan of 150k and when I pay the cash that the bank has provided me as a credit, it will be credited. Since here Loan has been provided to us, we have to debit loan account as only as an exchange for a loan we are getting a cash credit.