Business Accounting

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:

a.Asset Account

b.Hire Purchaser Company Vendor A/c

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