Scenario: John Smith bought a property under a corporation name, ABC Holding Ltd. He gave $XXXXXX loan to the corporation. That loan amount was used to purchase the property. How to record this transactions in the accounting book?
Solution:
In this scenario, John Smith provided a loan to the corporation, ABC Holding Ltd., which was used to purchase a property. Here’s how this transaction should be recorded in ABC Holding Ltd.’s accounting books:
1. Record the Loan from John Smith:
Since John Smith loaned money to the corporation, ABC Holding Ltd. needs to recognize the loan as a liability and also record the receipt of cash.
Journal Entry:
| Account | Debit | Credit |
|---|---|---|
| Cash (Asset) | $XXXX | |
| Loan Payable to John Smith (Liability) | $XXXX |
- Debit: Cash (increases the cash in the corporation as it receives the loan).
- Credit: Loan Payable to John Smith (increases the corporation’s liability for the loan).
2. Record the Purchase of the Property:
When ABC Holding Ltd. uses the loaned money to purchase the property, the cash decreases, and the property is added as an asset.
Journal Entry:
| Account | Debit | Credit |
|---|---|---|
| Property (Asset) | $XXXX | |
| Cash (Asset) | $XXXX |
- Debit: Property (increases the property account for the purchased property).
- Credit: Cash (decreases the cash as it is spent to acquire the property).
Summary:
- Step 1 (Loan Receipt): Debit Cash, Credit Loan Payable to John Smith.
- Step 2 (Property Purchase): Debit Property, Credit Cash.
This ensures that ABC Holding Ltd. records both the loan from John Smith and the purchase of the property accurately in its books.
You can use the following transaction to create a Journal Transaction. You can create a Journal Transaction to achieve this scenario/ above/following.
How to do Journal Transaction?
How to do Journal Transaction? – Mi Property Portal Help Center