Loan

A loan is an arrangement under which a lender such as a bank or other financial institution allows another party the use of funds in exchange for an interest payment and the return of the funds at the end of the Loan Agreement.

A Loan can be classified into 2 types:

Current Loan: E.g. Bank OD: An Bank overdraft is an extension of credit from a lending institution that is granted when an account reaches zero. The overdraft allows the account holder to continue withdrawing money even when the account has no funds in it or has insufficient funds to cover the amount of the withdrawal.

Long Term Loan: E.g. Term Loan: Any loans & Borrowings that are payable after a year (12 months) are classified as long term loans & borrowings. Entity generally takes long term loans from banks or financial institutions to run its business, to purchase fixed assets like building, office equipment, plants & Machinery, etc.