Accounting For Hire Purchase In The Purchaser’s Book

This article deals the Accounting treatment of Hire Purchase Agreement of Purchaser:

In the Purchaser’s Books

  • Goods on hire purchase are treated as Assets upon receipt. The cash price is recorded as Cost of Assets re: Fixed Assets and
  • The interests on hire purchase are charge to the Profit & Loss account as revenue expenditure over the period of the Hire Purchase Agreement

Accounts Required in The Purchaser’s Books:

  • Asset Account
  • Hire Purchaser Company Vendor A/c
  • Hire Purchase Interest Suspense Account

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.
3. Hire Purchase Interest Suspense A/c

  • 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

Share and Enjoy:
  • Digg
  • del.icio.us
  • Netvouz
  • DZone
  • ThisNext
  • MisterWong
  • Wists

December 12, 2007  Tags: Hire Purchase, Hire purchase accounting  Posted in: Hire Purchase

3 Responses

  1. soowm - December 13, 2007

    With the popularity of operating lease. Hire Purchase will be very rare going forward. Nowdays even leasehold land cannot be classified as asset, but prepaid lease

  2. Mortgage Claims - February 16, 2008

    Well…
    The Hire Purchase will be very rare going forward. Nowdays even leasehold land cannot be classified as asset.

  3. Mortgage Claims - February 16, 2008

    Well..
    The Hire Purchase will be very rare going forward. Nowdays even leasehold land cannot be classified as asset.

Leave a Reply


WordPress SEO fine-tune by Meta SEO Pack from Poradnik Webmastera
  • Google PageRank Checking tool