Question

I have a business and took out a personal loan to keep my business a float. On 01/15/2020 the loan has a balance of 150k. My bank agrees to let me put this personal loan on the business and they buy out the other lender. This transaction is as follows:

Operating Account (Cash account/Asset): Debit of 150k (Because the bank gave me $150k cash)
Bank loan (Liability): Credit of 150k (Because the business now has a bank loan of $150k)

How do I know record the payout to the prior lender. If you recall above, the bank gave me 150k cash to pay the prior lender so I would credit cash for 150k because cash is going out. What would I debit? Because this was a personal loan that the business took on, I don't know what to debit?

The accounting system doesn't allow me to put in a beginning balance for the prior to loan to pay it out. What journal entries do I need to make?

Answer 1

As of what I can understand from this statement is you took a personal loan of 150k and put that into your business along that bank has also taken over your liability of lender under their consideration. You and your business being two separate entity, I will consider both to be two different loans. So I will put journal entries for all the transactions as follows:

1. Bank/Cash A/c _______________________dr 150k

To Proprietor's Ac________________________cr 150k

( Being an amount of 150k invested by proprietor)

2. Lender's A/c __________________________ dr ###k

To Bank Loan A/c________________________cr ###k

( Being lenders worth ###k taken over by bank as a bank loan)