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Interest on Loan

Interest paid on loans taken by the business is treated as expense and will appear on the Debit side of the Profit and loss account.
Sometimes the interest on loan may not be fully paid and may be outstanding when the final account is prepared. In this case, the Interest on loan account will be debited by the outstanding interest amount.

Adjusting Entries


Interest on Loan account Dr.
  Outstanding Interest account  
(Being outstanding interest on loan)  

Accounting treatment

Interest on loan is an expense for the business and appears on the Debit side of the Profit and Loss account.
Interest on loan is a liability for the business and is added to the Loan Account in the Liabilities section of the Balance Sheet.



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