The profit or loss for an accounting period on goods of small value sold on hire purchase basis can also be ascertained by another method called ‘Stock and Debtors System’. This system is similar to the system followed in case of branch accounts.
Under this system, we make use of the four control accounts viz (i) Hire Purchase Stock Account, (ii) Hire Purchase Debtors Account, (iii) Goods Sold on Hire Purchase Account, and (iv) Goods Repossessed Account; and prepare Hire Purchase Adjustment Account for working out the profit or loss on the hire purchase business. The Hire Purchase Adjustment Account is similar to the second part of the Hire Purchase Trading Account wherein entries are made for the loading involved in the goods sold on hire purchase and the opening and closing balances of hire purchase stock (instalments not yet due), and shows the expenses and losses re1ating to the hire purchase business. The balancing figure in the Hire Purchase Adjustment Account represents the profit or loss on the hire purchase business.
The following journal entries are passed under this system to open the necessary accounts in the ledger.
1. For goods sold on hire purchase
Hire Repossessed A/c Dr.
To Goods sold on H.P. A/c
2. For total instalments due during the year
Hire Purchase Debtors A/c Dr
To Hire Purchase Stock A/c
3. For cash received
Cash A/c Dr.
To Hire Purchase Debtors A/c
4. For goods repossessed (unpaid instalments)
Goods Repossessed A/c Dr.
To Hire Purchase Stock A/c
5. For loading on goods sold on H.P.
Goods sold on H.P. A/c Dr.
To Hire Purchase Adjustment A/c
6. For loading on opening H.P. stock
Stock Reserve A/o Dr.
To Hire Purchase Adjustment A/c
7. For loading on closing H.P. stock
Hire Purchase Adjustment A/c Dr.
To Stock Reserve A/c
8. For loss on goods repossessed
Hire Purchase Adjustment A/c Dr.
To Goods Repossessed A/c
(With difference between instalments unpaid and market value of goods repossessed or for loading only)
9. For expenses on hire purchase business
Hire Purchase Adjustment A/c Dr.
To Expenses A/c
10. For transfer of profit on hire purchase business
Profit & Loss A/c Dr.
To Hire Purchase Adjustment A/c
In case of loss, the entry can be reversed
11. For closing goods sold on Hire Purchase Account
Goods Sold on H.P. A/c Dr.
To Trading (Stock at shop) A/c
