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by Phriscylia Ng on May 26th, 2009

Phriscylia Ng

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Which transaction account will involve in case of Company A help Company B to pay debt

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  • by aneni on August 28th, 2009

    aneni

    Well, Company B is borrowing money from Company A so they will CREDIT a newly-setup liability account with the amount of the loan, and DEBIT Cash (add the $ to the checking account).

    Now when they write the check to pay the debt, they will CREDIT Cash (reducing its balance) and DEBIT the liability account that was already setup for the debt. If they pay the debt in full, the DEBIT will bring the balance to zero.

    If Company B is paying interest on the debt, then for each payment, the full CREDIT is still applied to Cash, but the DEBIT is split between the debt/liability account (reducing the amount you owe) and DEBITing the Interest Expense Account).

    If you're confused about transactions-debits-credits, etc. like I was for decades, read http://www.keynotesupport.com/accounting-transactions.shtml - You'll be amazed.

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