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INTEREST ON LOAN

Loan is an ambiguous item. It may be borrowed or it may also be lent. If loan appears at the debit side of Trial balance, it will mean that the funds have been advanced to outsiders. It is an asset. The interest received on it will be gain and thus credited to profit and loss account. If this item appears in the trial balance, it will be shown at the credit side of profit and loss account only. In case the item belongs to adjustment it will be shown at two places. It will be shown at the credit side of profit and loss account and also added to loan at the assets side of the Balance sheet.

Interest on loan borrowed, will be shown at the debit side of ¢e profit and loss account only, if it is an item from Trial balance.

Interest on loan account will be shown at the credit side of profit and loss account -and will also be added to loan account at the assets side of Balance sheet.