What is the Journal entry for purchase of asset with proceeds of bank loan?

Answer 1

If you borrow the money and the bank pays the amount directly to the company (or person) in which you are buying the asset the from, depending on the asset the following entries will be made

Debit the related asset account and credit either accounts or notes payable. This transaction will NOT affect cash, as your books never see an actual transaction in the cash account.

The best example I can think to show this is the purchase of a vehicle for your business. Say you purchase the vehicle for $25,000 and the bank finances this amount.

Equipment - Vehicle (db) $25,000

Notes Payable (cr) $25,000

After reading the question again, I thought I should add this. Since the question is worded "proceeds of a bank loan" it implies that the company/person has already taken out the loan and has it recorded on the books. If this is the case then the cash is already received from the bank and therefore the transaction would be listed as a cash purchase. The initial recording of the loan would be a debit to cash and a credit to notes payable (note that NO interest would be recorded in the initial transaction as no interest would have accrued on the first day of the loan.) Any purchase made after this time would be recorded as a cash purchase.

Answer 2

debit asset
credit cash / bank