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Hire Purchase Accounts
Hire Purchase Accounts
Hire Purchase Accounts
When goods are purchased When Down Payment is made When Interest is Due When Installment is paid Charging Depreciation At the Closure of Books
When hire purchase is recorded with interest suspense account: Case In the Books of Hire Purchaser In the Books of Hire Vendor
Assets Account Dr. (Cash Price) Interest Suspense Account Dr. (Interest) To Hire Vendor Account (HP Price) Hire Vendor Account Dr To Bank Account Interest Account Dr. To Interest Suspense Account Hire Vendor Account Dr. To Bank Account Depreciation Account Dr To Assets Account Profit & Loss Account Dr. To Interest Account To Depreciation Account Hire Purchaser Account Dr. (HP Price) To HP Sales Account (Cash Price) To Interest Suspense Account (Int.) Bank Account Dr To Hire Purchaser Account Interest Suspense Account Dr. To Interest Account Bank Account Dr. To Hire Purchaser Account No Entry Interest Account Dr To Profit & Loss Account
When Down Payment is made When Interest is Due When Installment is paid Charging Depreciation At the Closure of Books
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Rohit Agarwal
Repossession of Goods
Complete Repossession: The treatment required in the case of complete repossession is as follows: In the Books of Hire Purchaser In the Books of Hire Vendor
(a) For closing Hire Vendors account: Hire Vendor Account Dr To Asset Account (Amount due to the hire vendor) (b) For closing asset account: (i) If the book value of asset exceeds the amount due to the hire vendor. Profit & Loss Account Dr. To Asset Account (ii) If the amount due to hire vendor exceeds the book value of asset: Asset Account Dr To Profit & Loss Account (a) On repossession of goods: Goods repossessed account Dr. To Hire Purchasers account. (Revalued amount of goods repossessed) (b) For amount spent on reconditioning of goods repossessed: Goods repossessed account Dr. To Bank Account (c) For sale of goods repossessed: Bank account\Debtors account Dr To Goods repossessed account (d) For loss on sale of goods repossessed: Profit and loss account Dr To Goods repossessed account
Partial Repossession: The treatment required in the case of complete repossession is as follows: In the Books of Hire Purchaser In the Books of Hire Vendor
(a) For transfer of agreed value of goods repossessed: Hire Vendor Account Dr To Asset Account (Agreed value of goods repossessed) (b) For transfer of loss on default: Profit & Loss Account Dr. To Asset Account (a) On repossession of goods at agreed value: Goods repossessed account Dr. To Hire Purchasers account. (Agreed value of goods repossessed) (b), (c), (d) Same as in above case.
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Rohit Agarwal
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2.Stock & Debtor Method: Similar to the branch accounts, here also we prepare several accounts under this method. 1. First is Shop Stock Account. All the entries are recorded at cost price and when goods are sold on hire purchase, it is transferred to Goods Sold on HP Account. 2. Next we prepare Goods Sold on HP Account. 3. Next we prepare Hire Purchase Stock Account. It represents the HP price of the goods lying with the customers but installment not yet due. As and when installment falls due, amount is transferred from this account to Hire Purchase Debtors Account. 4. Next we prepare Hire Purchase Debtors Account. When installments fall due, they are debited to this account and it is credited when the amount is received. Hence the balances of this account reflect amount due but not received from the debtors. 5. Lastly we prepare Hire Purchase Adjustment Account, as we know all the entries in HP Stock Account is recorded at HP Price, hence the profit part of it is immediately recorded in this account on the opposite side of the original entry. Any other expenses relating to the HP business is also recorded in it and the balancing figure shows the profit or loss earned from Hire Purchase Business. Format is given below:
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Rohit Agarwal
Shop Stock Account By Goods Sold on HP A/c (Cash Price) By Balance c/d
Hire Purchase Stock Account By Hire Purchase Debtors Account (Installments falling due) By Goods Repossessed Account (Ins. not yet due on such goods) By Balance c/d
Hire Purchase Debtors Account To Balance b/d By Bank Account To Hire Purchase Stock Account By Goods Repossessed Account (Installments due, but not paid) By Balance c/d
Goods Repossessed Account To Hire Purchase Stock Account By HP Adjustment Account To Hire Purchase Debtors Account (Loss on repossession) By Balance c/d
HP Adjustment Account To HP Stock Reserve By Goods Sold on HP A/c To Goods Repossessed Account By HP Stock Reserve To Profit & Loss Account
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