Accounting For Hire Purchase In The Purchaser’s Book

Double entries:

(a) Debit:Asset Account

Credit:Hire Purchaser Company Vendor A/c

[ with the cash price of asset ]

(b) Debit:HP Interest Suspense A/c

Credit:Hire Purchaser Company Vendor A/c

[ with the total hire purchase interest ]

(c) Debit:HP Company Vendor a/c

Credit:Bank A/c

[ payment of deposit and installment paid ]

(d) Debit:Profit &Loss a/c

Credit:HP Interest Suspense A/c

[ interest written off in the period ]

Various Accounts Items

1. Asset Account

• records the cash price of the goods and separate asset accounts in respect of cost,depreciation and disposal are maintained.
• Depreciation is computed on the full amount of the cash price
• In Balance Sheet,asset will appear at cost less provision for depreciation.

2. Hire Purchase Company Vendor A/c

• Shows amount payable payable under the hp agreement for both cash price plus hp interest.
• Balance represent all unpaid installments
• In the Balance sheet,the amount outstanding at the end of the account period shown as Current liability.

• Shows interest included in the balance on the HP Company vendor a/c.
• Interest apportioned to any accounting period is charged to the profit &loss a/c.
• Balance represent interest needed to be apportioned to later accounting period
• In the Balance sheet,the amount of hp interest suspense a/c must be deducted from the balance in the HP Company vendor a/c and shown as Current liability