Bank loans and borrowing money - both an asset and a liability?

OspreyCosmosOspreyCosmos Registered Posts: 5
Hi, I'm wondering if anyone can explain this for me. I'm reading the Frank Wood's Business Accounting book, and I'm on the section about balance sheets. In two of the activity questions it gives a selection of transactions that a new business owner has done before selling anything, and you have to calculate the amount of capital, by adding up the assets, minus the liabilities.

One of the activities lists borrowing £5,000 from someone, and on the other question someone lends the owner £2,500. These are of course liabilities, but would they not also be an asset (as well as any bank loans), because the money has gone into either the bank account, or the cash account, and money in both of these counts as an asset?

The answer lists these loans as liabilities only, but using the rules of double entry, I wonder why they don't count as both an asset and a liability.

I hope that what I've written makes sense!

Edit: I must point out that I'm just doing some reading before I start my formal studies, since I'm enjoying the subject. There's probably an explanation somewhere down the line that I'll learn, I just like to clear things up and understand WHY things are done as I come across them!

Comments

  • davealucasdavealucas LondonMAAT Posts: 65
    You are correct. The entries would be to debit the bank account (an asset) and credit the loan account (the liability).
  • OspreyCosmosOspreyCosmos Registered Posts: 5
    Thank you, I'm glad that I understood that bit correctly!

    Would it be the same for the balance sheet itself? From what I've seen the balance sheet only has one entry for each event, loans are recorded as a liability only.
  • davealucasdavealucas LondonMAAT Posts: 65
    The balance sheet only shows the financial position of a business at a certain point in time. Loans for a business would be a liability (i.e. the business owes the bank) but would be an asset to the lender.
  • OspreyCosmosOspreyCosmos Registered Posts: 5
    edited October 15
    Ah! Thank you! I've got my head around it now! The balance sheet is just a snapshot, and single entry.

    Thanks again for your help!
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