What is a line of credit?
In business a line of credit or credit line is an arrangement/commitment by a bank or other creditor with a customer. The agreement specifies an amount that the customer can borrow or use in the future, assuming that the customer’s financial condition is maintained.
For example, a company may arrange with its bank to borrow money as needed but never owe the bank in excess of $500,000. The agreement might specify that interest will be calculated by multiplying the prime rate times the loan balance.
In the U.S. many individuals have a home equity line of credit that allows them to borrow up to the amount of “the line.”
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what kind of account is the interest on the line of credit.
Thank you
Interest on a line of credit is an expense in the period in which it occurs. Interest expense is a temporary or nominal account that appears on the income statement. Interest Expense is considered a Nonoperating or Other item.
How do I post a line of credit; what account is debited and what account is credited? I can’t get my mind around this. Is the line of credit an asset or a liability? How does a line of credit affect the company’s equity account?