So far as the vendor is concerned, a hire purchase sale is just like an ordinary sale with the exception that payment is deferred over a period of time for which the vendor charged interest. He debits the Hire Purchaser’s A/c with full cash price and credit is given to Sales A/c. The interest amount is debited to Hire Purchaser’s A/c as and when the instalments become due. Instalment amounts received are credited to the Hire Purchaser’s A/c and debited to Bank A/c. The journal entries passed are as follows:
1 On sale of goods under hire purchase
Hire Purchaser A/c Dr
To Sales A/c
(with full cash price)
2 On receiving cash price down payment
Bank A/c Dr
To Hire Purchaser A/c
3 On instalment becoming due
Hire purchaser A/c Dr.
To Interest A/c
4 On getting payment on the due instalment
Bank A/c Dr.
To Hire Purchaser A/c
With the help of above entries, you can easily prepare the Hire Purchaser’s A/c and Interest A/c.
