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Question - Help

  • Student
  • 2 posts
  • # 117804

Hi all, 

 

I have a question that I don't seem to find why the correct answer is the correct answer! 

3. Peter takes a long from the bank for £3500. How will this be entered into the ledger accounts?

a. Credit bank, Debit loan

b. Debit bank, Credit loan

c. Debit bank, Credit capital

d. Credit bank, Debit capital 

The correct answer according to my book is (d) but I cannot understand why we are recording as a Capital account and not as a Loan account. Is this a rule? 

 

thank you very much in advance! 

Flavia 

  • Member PM.Dip
  • Practice Licence
  • 6 posts
  • # 117807

Hi Flavia,

 

If i understand correctly.  For answer to be D (Cr Bank, Dr Capital) it seems to me that Peter is taking the money from the company bank account as a loan of money from the company, not a loan from the bank to help keep the company running.

By taking the money from the company bank account (the Credit entry) he is reducing the amount of captial that is in the company (the Debit entry)

Thats my take on the question.  Anyone else have any thoughts?

 

Kind Regards,

Claire Preston

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