diff --git a/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/domain/Loan.java b/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/domain/Loan.java
index 2922a4f5b..e077c3aac 100644
--- a/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/domain/Loan.java
+++ b/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/domain/Loan.java
@@ -2166,9 +2166,6 @@ public class Loan extends AbstractAuditableWithUTCDateTimeCustom {
 
         final LoanStatus statusEnum = loanLifecycleStateMachine.dryTransition(LoanEvent.LOAN_REJECTED, this);
         if (!statusEnum.hasStateOf(LoanStatus.fromInt(this.loanStatus))) {
-            loanLifecycleStateMachine.transition(LoanEvent.LOAN_REJECTED, this);
-            actualChanges.put(PARAM_STATUS, LoanEnumerations.status(this.loanStatus));
-
             final LocalDate rejectedOn = command.localDateValueOfParameterNamed(REJECTED_ON_DATE);
 
             final Locale locale = new Locale(command.locale());
@@ -2179,6 +2176,9 @@ public class Loan extends AbstractAuditableWithUTCDateTimeCustom {
             this.closedOnDate = rejectedOn;
             this.closedBy = currentUser;
 
+            loanLifecycleStateMachine.transition(LoanEvent.LOAN_REJECTED, this);
+            actualChanges.put(PARAM_STATUS, LoanEnumerations.status(this.loanStatus));
+
             actualChanges.put(LOCALE, command.locale());
             actualChanges.put(DATE_FORMAT, command.dateFormat());
             actualChanges.put(REJECTED_ON_DATE, rejectedOn.format(fmt));
diff --git a/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanApplicationRejectionForLoanProductWithPeriodicAccrualAccountingTest.java b/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanApplicationRejectionForLoanProductWithPeriodicAccrualAccountingTest.java
new file mode 100644
index 000000000..e60af672c
--- /dev/null
+++ b/integration-tests/src/test/java/org/apache/fineract/integrationtests/LoanApplicationRejectionForLoanProductWithPeriodicAccrualAccountingTest.java
@@ -0,0 +1,118 @@
+/**
+ * Licensed to the Apache Software Foundation (ASF) under one
+ * or more contributor license agreements. See the NOTICE file
+ * distributed with this work for additional information
+ * regarding copyright ownership. The ASF licenses this file
+ * to you under the Apache License, Version 2.0 (the
+ * "License"); you may not use this file except in compliance
+ * with the License. You may obtain a copy of the License at
+ *
+ * http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing,
+ * software distributed under the License is distributed on an
+ * "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+ * KIND, either express or implied. See the License for the
+ * specific language governing permissions and limitations
+ * under the License.
+ */
+package org.apache.fineract.integrationtests;
+
+import static org.junit.jupiter.api.Assertions.assertTrue;
+
+import io.restassured.builder.RequestSpecBuilder;
+import io.restassured.builder.ResponseSpecBuilder;
+import io.restassured.http.ContentType;
+import io.restassured.specification.RequestSpecification;
+import io.restassured.specification.ResponseSpecification;
+import java.util.UUID;
+import org.apache.fineract.client.models.GetLoansLoanIdResponse;
+import org.apache.fineract.client.models.PostLoansLoanIdRequest;
+import org.apache.fineract.client.models.PostLoansLoanIdResponse;
+import org.apache.fineract.integrationtests.common.ClientHelper;
+import org.apache.fineract.integrationtests.common.Utils;
+import org.apache.fineract.integrationtests.common.accounting.Account;
+import org.apache.fineract.integrationtests.common.accounting.AccountHelper;
+import org.apache.fineract.integrationtests.common.loans.LoanApplicationTestBuilder;
+import org.apache.fineract.integrationtests.common.loans.LoanProductTestBuilder;
+import org.apache.fineract.integrationtests.common.loans.LoanTransactionHelper;
+import org.junit.jupiter.api.BeforeEach;
+import org.junit.jupiter.api.Test;
+
+public class LoanApplicationRejectionForLoanProductWithPeriodicAccrualAccountingTest {
+
+    private ResponseSpecification responseSpec;
+    private RequestSpecification requestSpec;
+    private ClientHelper clientHelper;
+    private LoanTransactionHelper loanTransactionHelper;
+    private AccountHelper accountHelper;
+
+    @BeforeEach
+    public void setup() {
+        Utils.initializeRESTAssured();
+        this.requestSpec = new RequestSpecBuilder().setContentType(ContentType.JSON).build();
+        this.requestSpec.header("Authorization", "Basic " + Utils.loginIntoServerAndGetBase64EncodedAuthenticationKey());
+        this.responseSpec = new ResponseSpecBuilder().expectStatusCode(200).build();
+        this.loanTransactionHelper = new LoanTransactionHelper(this.requestSpec, this.responseSpec);
+        this.clientHelper = new ClientHelper(this.requestSpec, this.responseSpec);
+        this.accountHelper = new AccountHelper(this.requestSpec, this.responseSpec);
+    }
+
+    @Test
+    public void loanApplicationRejectionForPeriodicAccrualAccountingLoanProductTest() {
+
+        Account assetAccount = this.accountHelper.createAssetAccount();
+        Account incomeAccount = this.accountHelper.createIncomeAccount();
+        Account expenseAccount = this.accountHelper.createExpenseAccount();
+        Account overpaymentAccount = this.accountHelper.createLiabilityAccount();
+
+        // Create Loan Product with Periodic Accrual accounting
+        final Integer loanProductID = createLoanProductWithPeriodicAccrualAccounting(assetAccount, incomeAccount, expenseAccount,
+                overpaymentAccount);
+
+        // Loan ExternalId
+        String loanExternalIdStr = UUID.randomUUID().toString();
+
+        // Client and Loan account creation
+        final Integer clientId = clientHelper.createClient(ClientHelper.defaultClientCreationRequest()).getClientId().intValue();
+
+        final Integer loanId = createLoanAccount(clientId, loanProductID, loanExternalIdStr);
+
+        // verify Loan status as submitted and pending approval
+        GetLoansLoanIdResponse loanDetails = this.loanTransactionHelper.getLoanDetails((long) loanId);
+        assertTrue(loanDetails.getStatus().getPendingApproval());
+
+        // Reject Loan application
+        PostLoansLoanIdResponse result = this.loanTransactionHelper.rejectLoan(loanExternalIdStr,
+                new PostLoansLoanIdRequest().rejectedOnDate("3 September 2022").locale("en").dateFormat("dd MMMM yyyy"));
+
+        // Verify Loan application status is Rejected
+        assertTrue(result.getChanges().getStatus().getValue().equals("Rejected"));
+
+    }
+
+    private Integer createLoanProductWithPeriodicAccrualAccounting(final Account... accounts) {
+
+        final String loanProductJSON = new LoanProductTestBuilder().withPrincipal("1000").withRepaymentAfterEvery("1")
+                .withNumberOfRepayments("1").withRepaymentTypeAsMonth().withinterestRatePerPeriod("0")
+                .withInterestRateFrequencyTypeAsMonths().withAmortizationTypeAsEqualPrincipalPayment().withInterestTypeAsFlat()
+                .withAccountingRulePeriodicAccrual(accounts).withDaysInMonth("30").withDaysInYear("365").withMoratorium("0", "0")
+                .build(null);
+
+        return this.loanTransactionHelper.getLoanProductId(loanProductJSON);
+    }
+
+    private Integer createLoanAccount(final Integer clientID, final Integer loanProductID, final String externalId) {
+
+        String loanApplicationJSON = new LoanApplicationTestBuilder().withPrincipal("1000").withLoanTermFrequency("1")
+                .withLoanTermFrequencyAsMonths().withNumberOfRepayments("1").withRepaymentEveryAfter("1")
+                .withRepaymentFrequencyTypeAsMonths().withInterestRatePerPeriod("0").withInterestTypeAsFlatBalance()
+                .withAmortizationTypeAsEqualPrincipalPayments().withInterestCalculationPeriodTypeSameAsRepaymentPeriod()
+                .withExpectedDisbursementDate("03 September 2022").withSubmittedOnDate("01 September 2022").withLoanType("individual")
+                .withExternalId(externalId).build(clientID.toString(), loanProductID.toString(), null);
+
+        final Integer loanId = loanTransactionHelper.getLoanId(loanApplicationJSON);
+        return loanId;
+    }
+
+}