For bookkeeping purposes, does the bank record the promissory note as a loan from borrower to the bank?
Nope. The bank records the note as an asset—not a loan, and indeed as long as the loan remains unpaid, the unpaid balance represents an asset according to the rules of accounting. That note represents a claim against currency the bank created and then gave to the borrower. There must be a mechanism to track where that currency went. However, double entry bookkeeping requires that for every asset recorded, there must be an equal and offsetting liability recorded. The bank does this when they create the terms of the loan. The bank records the note as an asset, then records the currency they just created as a liability to the borrower. Then the bank gives the borrower a check for the amount of the liability. Conversely, for every change in the ledger’s liabilities, an equal and offsetting entry must be made in the assets column. However, unlike a Demand Deposit Account (DDA) whereby additions and subtractions to the account are recorded almost instantaneously, these similar entries for lo
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