Is Loan a current asset?

-This question was submitted by a user and answered by a volunteer of our choice.

Firstly, Nancy, the question put up by you is a bit vague. As in it is difficult to identify whether you have an issue in understanding an accounting concept regarding a loan given or loan taken.

Moving ahead, I think I can answer the question stated below in two ways

Is Loan a Current Asset?

Case 1: If a Loan is Given

Firstly you have to be clear whether the loan is a Loan granted or a Debt. When an entity lends a certain amount to another person based on certain conditions agreed by the parties at the time of entering into such contract. Then such a lender will recognise this transaction as a case of Loan Given.

Case 2: If a Loan is Taken

When an entity or a person owes a certain amount to another person or an entity or simply put up he has borrowed a certain sum from such another person based on certain conditions agreed at the time of entering into the contract such a transaction is a case of Loan Taken for the borrower.

To classify such a loan as a Current Asset or a Current Liability, you will need to first identify the tenure of such loan given or taken i.e whether it’s a Short term Loan or a Long term Loan.

If you want to make an accurate classification pertaining to the head under which such loan would be presented it is very important to ascertain whether its a short term or a long term loan.

Short term Loan

It refers to a loan taken or given for a short duration of time roughly ranging between a month and a year these are generally repaid in monthly instalments. Such Short term Loans can be classified under the heads of Current Assets or Liabilities. If you are still unable to get the concept clear the below-mentioned table can be of great help –

Long term Loan

A loan Taken or Given shall be said to be a Long term Debt or Long term Loan Given if such a loan is not due to be repaid or received within a year. It can be classified as a Non-Current Asset or a Liability.

Similarly, refer to the table below for a better understanding of this concept

I am sure that after having a look at the image included below you will have a clear understanding of this concept;

>Related Long Quiz for Practice Quiz 20 – Current Assets