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  • Writer's pictureEH Lim

Hire Purchase

Often we need to purchase equipment under hire purchase scheme. Assuming you purchased a photo copier at $15,000.00 under hire purchase for $750.00 monthly repayment for 24 months.

To record the cost of fixed asset and the hire purchase liability you may pass a journal to:

Debit Office Equipment account (Fixed Assets account type): 15,000

Credit Hire Purchase account (Current Liability account type): 15,000

You can scan the original Hire Purchase contract into a PDF format and attach it onto the journal for future reference.

Assuming the monthly repayment of 750.00 is consist of 625.00 principal and 75.00 interest (you may have to refer to the original repayment schedule to find out the monthly interest repayment); you can use a Payment transaction to record the monthly repayment. Under the By Account tab of the Payment transaction:

Line 1: Hire Purchase Repayment account (Current Liability account type): 625.00 Line 2: Hire Purchase Interest (Expense account type): 75.00

Some user may prefer to use one account for recording both Hire Purchase principal amount and Hire Purchase repayment amount. The method use is subjected from user to user.

If the vendor also charge you the monthly printing and copying fee at the same time (assuming is at $12.50), then you may add a third line into the payment transactions as:

Line 3: Printing and Copying fee (expense account type): 12.50

If there is a GST charge on the printing and copying fee, then you need to apply the relevant GST code, such as “G” GST code for standard rated GST.

The double entry for this Payment transaction will be:

Debit Hire Purchase Repayment account (Balance Sheet) : 625.00

Debit Hire Purchase Interest account (Profit and Loss): 75.00

Debit Printing and Copying Fee account (Profit and Loss): 12.50

Credit Bank account (Balance Sheet): 712.50

If you receive monthly bill from the vendor instead of monthly auto bank deduction for the repayment, then you may record the bill as a Purchase Invoice transaction and follow by a Payment transaction to pay off the outstanding invoice.

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