Features of Hire Purchase Payment in installments Interest is charged by the seller Down payment Property in the goods is transferred only on payment of last installment Difference between Sale amp Hire Purchase ID: 1029330
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1. HIRE PURCHASE AND INSTALLMENT SYSTEM
2. Features of Hire PurchasePayment in installmentsInterest is charged by the sellerDown paymentProperty in the goods is transferred only on payment of last installment
3. Difference between Sale & Hire PurchaseTransfer of ownershipPayment of priceInterestRepossessionRight of resaleTreatment of installments paid so farGoverning ActsRisk of Goods
4. Key Terms – Hire PurchaseCash priceHire Purchase PriceInterestDown PaymentRepossession of Goods – Full - PartialMethods of Depreciation – Straight Line Method / Fixed Installment MethodReducing / Diminishing Balance Method / Written Down Value Method
5. Hire Purchase Journal EntriesIN THE BOOKS OF HIRE PURCHASERFirst Year 6 entriesPurchase of assetDown paymentInterest for the yearPayment of installmentDepreciationTransferEntry No 1 & 2 First DayEntry No. 3 to 6 Last day of the year 2 nd year onwards
6. Hire Purchase Journal EntriesIN THE BOOKS OF HIRE VENDORFirst Year 5 entriesSale of goodsDown paymentInterest for the yearReceipt of installmentTransferEntry No 1 & 2 First DayEntry No. 3 to 5 Last day of the year 2 nd year onwards
7. Repossession -Special Right with hire vendor
8. Complete Repossession
9. Installment System Sale onlyPrice paid in installmentInterestTransfer of ownership – ImmediateRepossessionRight of resaleTreatment of installments paid – adjusted against the price
10. Journal Entries – In the books of PurchaseSr. No.TransactionJournal Entry1Purchase of AssetsAssets A/c Dr.Interest Suspense A/c Dr. To Vendor A/c2Down paymentVendor A/c Dr. To Cash / Bank3Interest for the yearInterest A/c Dr. To Interest Suspense A/c4Payment of installmentVendor A/c Dr. To Cash / Bank5DepreciationDepreciation A/c Dr. To Assets A/c6TransferProfit & Loss A/c Dr. To Interest A/c To Depreciation
11. Ledger Account – Books of PurchaserEvery Year === Carry forward Assets A/cVendor A/cInterest Suspense A/c
12. Journal Entries – In the books of VendorSr. No.TransactionJournal Entry1Sale of GoodsPurchaser A/c Dr. To Sales A/c To Interest Suspense A/c Dr.2Down paymentCash / Bank A/c Dr. To Purchase A/c3Interest for the yearInterest Suspense A/c Dr. To Interest A/c4Payment of InstallmentCash / Bank A/c Dr. To Purchase A/c5DepreciationNO ENTRY6TransferInterest A/c Dr. To Profit & Loss A/c7Transfer of SaleSales A/c Dr. To Trading A/c
13. Ledger Account – Books of VendorEvery Year === Carry forward Purchaser A/cInterest Suspense A/c