Journal Entry to transfer cash from one company to another
The company may transfer cash to another company due to different reasons. One of the reasons is the transfer of cash from the creditor to the borrower.
A loan from one company to another company is a type of financing that can be used to fund a wide variety of business activities. Typically, loans are used to finance the purchase of inventory or equipment or to cover operational expenses such as rent or payroll. Loans can also be used to finance the expansion of a business or to provide working capital in times of need. While loans from one company to another can be a helpful source of funding, it is important to remember that they must be repaid with interest. As such, loans should only be used when necessary and when a company is confident that it will be able to repay the loan in a timely manner.
After a creditor provides a loan to a borrower, the loan receivable must be recognized on the creditor’s balance sheet. This is because the loan receivable represents an asset of the creditor, and it must be accounted for accordingly.
The loan will typically be recorded as a liability of the borrower, which means that the creditor will be owed the outstanding balance of the loan. In some cases, the loan receivable may be secured by collateral, in which case the creditor will have a charge over the collateral. The recognition of loan receivables on balance sheets is an important part of accounting for loans and credit transactions.
Journal Entry
The cash is transferred from one company to another company during the business operation. One of the common reasons is the loan from a lender to a borrower. The company borrows money from another company to support the operation.
The recording will be different from the creditor and borrower.
Creditor
Creditor is a company that lends money to the borrower. It is the company that transfers cash to the borrower. The transaction will decrease the cash balance on balance sheet. It will increase the loan receivable on the balance sheet instead.
The journal entry is debiting loan receivable and credit cash.
| Account | Debit | Credit |
|---|---|---|
| Loan Receivable | XXXX | |
| Cash | XXXX |
Borrower
Borrower is the company that borrows money from the creditor. It is the company that receives the cash from the creditor. The transaction will increase the cash balance and record the loan payable. The loan will be recorded as the liability on the balance sheet. The borrower has the obligation to pay back the loan to the creditor.
The journal entry is debiting cash and credit loan payable.
| Account | Debit | Credit |
|---|---|---|
| Cash | XXXX | |
| Loan Payable | XXXX |
Example
Company ABC has borrowed cash from company XYZ in the amount of $ 50,000. The company has completed the transaction and transferred cash. The cash balance $ 50,000 has been transferred from ABC to XYZ. Please prepare journal entry for cash transfer from one company to another.
ABC has transferred cash to XYZ for the loan amount.
Company ABC
The company needs to record the loan balance and reduce cash balance.
The journal entry is debiting loan receivable $ 50,000 and credit cash $ 50,000.
| Account | Debit | Credit |
|---|---|---|
| Loan Receivable | 50,000 | |
| Cash | 50,000 |
Company XYZ
Company has received cash from the creditor. It needs to increase the cash balance and recognized the loan payable.
The journal entry is debiting cash $ 50,000 and credit loan payable $ 50,000.
| Account | Debit | Credit |
|---|---|---|
| Cash | 50,000 | |
| Loan Payable | 50,000 |