Question

If a company takes a loan for $10,000 at the beginning of the year at 10% interest that is to be paid in 4 years (interest and principle), what account will they credit at the end of the first year?

Answer 1

At the end of 1st Year following Journal Entry will be passed:

Interest Expense	Dr	1,000
Loan Payable	Dr		2,154
Cash / Bank	Cr		3,154

EMI amount is calculated by excel function = PMT(10%,4,10000,,0)

Loan Repayment Schedule is as follows:

Year	Opening	Interest Expense	Instalment	Closing
1	10,000	1,000	3,155	7,845
2	7,845	785	3,155	5,475
3	5,475	548	3,155	2,868
4	2,868	287	3,155	(0)