11. Trade payable and Long term borrowing

Question 1

Explain the difference between bank overdraft and bank loan.

what it is?

Answer 1

Bank loan
- Borrowing from bank

Bank overdraft
- Negative balance in bank account

Question 2

Explain the difference between bank overdraft and bank loan.

how does it arise?

Answer 2

Bank loan
• Business borrows a fixed amount and cash is transferred to its bank account

Bank overdraft
• Business withdraws more than what it has deposited in the bank account, up to the limit which the business and the bank have agreed on.

Question 3

Explain the difference between bank overdraft and bank loan.

how is it repaid?

Answer 3

Bank loan
• Regular cash payments in equal instalments over several years or a one-time lump-sum payment at the end of the loan period
Bank overdraft
• Deposits cash into the bank account within the year to reduce the overdraft

Question 4

Explain the difference between bank overdraft and bank loan.

How is it presented in the statement of financial position??

Answer 4

Bank loan
• Record as Long-term borrowings Under Non-current liabilities in the statement of financial position
Bank overdraft
• Record as Bank overdraft under Current liabilities in the statement of financial position

Question 5

Double entries when business obtain a bank loan.

Answer 5

Dr CAB

Cr Bank loan

Question 6

Double entries when business paid bank loan

Answer 6

DR Ban loan

Cr CAB

Question 7

If 1/3 of the bank loan $9000 will be repaid next year. Prepare sfpos

Answer 7

Sfpos
NCL
Long term borrowing $6000 (2/3)

CL
Current portion of LTB $3000 (1/3)