1. Hire Purchase and Instalment Purchase system

2. Introduction
There are different ways by which goods can be sold that is possession and as well ownership of goods will be passed form the seller to the purchaser. Goods can be sold for cash as well as for credit. Another way of selling goods is either on instalment purchase system or hire purchase system.

3. Instalment purchase system :
The possession and ownership of goods immediately passes from the seller to the buyer but the payment of the total price will be made in the instalments.
Hire Purchase :
The buyer acquires the possession of the goods immediately and agrees to pay the total hire purchase price in Instalments.

4. Terms Used in Hire Purchase Transactions
Hire Purchaser or hirer: He is the buyer of the goods.
Hire Vendor: He is the seller of the goods.
Cash price : It is the price on which purchaser can buy goods for cash.
Hire Purchase Price: It is the total amount which the Hire Purchaser is required to pay to the hire vendor.
Down Payment: It is the price which is paid by the hire purchaser to the vendor at the time of agreement.

5. Interest : It is the cost of borrowed funds to the asset.
Instalments: These are convenient amounts in which the hire purchase price is split.
Instalments Due: These are instalments which are due in the accounting period but not paid by the hire purchaser.

6. Hire Purchase Instalment Purchase It is an agreement of hiring
It is an agreement of sale
The parties to contract are called hire purchaser and Hire vendor
The parties to contact are called buyers and sellers.
Only the possession of the goods is transferred not the ownership
The ownership of the goods passes from seller to the buyer immediately at the time of sale
The buyer can return the goods to the vendor if he does not want to pay the rest of instalments.
The buyer can’t escape the liability for the payment of future instalments by returning the goods.
The buyer can’t hire out, sell,transfer,destroy or damage the goods.
 As the buyer becomes the owner of the goods he can dispose the goods in any manner as he likes.

7. Hire Vendors book For the opening stock of goods.
Hire purchase trading A/C Dr.
To Hire purchase stock account
For Instalment due from Hire Purchase customers
Hire purchase trading A/c Dr.
To instalment Due
For the goods sold on Hire purchase basis
Hire purchase trading A/c Dr
To goods sold on Hire purchase A/C

8. For cash received
Bank A/c Dr ToHire Purchase trading A/C
For repossession of goods due to non payment of instalment
Goods repossessed A/C Dr
To hire purchase trading A/C
For closing stock of goods lying with customers
Hire purchase stock A/c Dr
To Hire Purchase trading A/C
For Instalments due from hire purchase customer at end of the year
Instalments due A/C Dr

9. For loading of opening stock with customers
Stock Reserve A/C Dr
To Hire Purchase trading A/C
For loading of Closing Stock with customers
Hire Purchase trading A/C Dr
To Stock reserve A/C
For loading of Goods on Hire Purchase
Goods sold on Hire Purchase A/C Dr

10. For profit or Loss on Hire purchase transaction
Hire Purchase A/C Dr
To P/L A/C
Loss
P/L A/C Dr
To Hire Purchase trading A/C

11. Hire Purchase Trading A/c
Particulars Rs
To Opening Balances
-Hire Purchase stock
- Hire Purchase Debtors
******
By Bank/Cash
*******
To goods sold on Hire Purchase
By Goods Repossessed A/C
To Stock reserve A/c
*****
By closing balances
- Hire Purchase Stock
- Hire purchase Debtor
To profit and Loss A/C
By stock reserve A/C
By goods sold on hire purchase
By profit and Loss A/C

12. Stock And Debtors Method
Under this method following six accounts are prepared:
Hire Purchase Stock Account
Hire Purchase Debtor Account
Shop Stock Account
Hire Purchase Adjustment Account
Goods sold on Hire Purchase Account
Goods Repossessed Account

13. Example
Question Harish sells goods on Hire purchase at cost plus 50% , from the following particulars relating to the hire purchase department for the year ending 31st dec 2009, prepare H.P A/C and Stock reserve account. Jan1 Stock with Hire Purchase customer at selling price Rs Jan1 Stock at shop at cost Rs 9,000 Jan1 Instalment due Rs 2,500 Jan1 Cash received from customers Rs30,000. Dec31 Goods purchased during the year Rs30,000. Dec31 Goods repossessed (Instalments due Rs 1000 ) Valued at Rs250. Dec31 Hire Expenses Rs250 Dec31 Instalment due customer’s paying 4,500. Dec31 Stock at shop at cost (Excluding repossessed goods) Rs10,000.

14. Solution Hire Purchase stock A/C
Particulars RS Rs
To Balance b/d
4,500
By H.P. Debtors A/c
33,000
To goods sold on H.P. A/c
Cost ,000
Profit ,500
43,500
By balance c/d (b.f.)
15,000
48,000

15. Hire Purchase Debtor A/C
Particulars RS
Particular Rs
To balance b/d
25,00
By Cash
30,000
To Hire purchase stock A/C (b.f.)
33,000
By goods repossessed A/C
250
By H.P. Adjustment A/C
750
To balance c/d
4,500
35,500

16. Shop Stock A/c Particulars RS Rs To Balance b/d 9,000
By cost of goods sold on H.P. (b.f.)
29,000
To Purchases A/c
30,000
By balance c/d
10,000
39,000
______________________
_____________
____________

17. HP Adjustment A/c Particulars RS Rs To stock reserve A/c
(( 50/150)*15000)
5,000
By stock reserve A/c
((50/150)*4500)
1,500
To hire purchase debtors
750
By good sold on H.P. A/c
((50/150)*43500)
14,500
To hire expenses
250
To profit and loss Account
10,000
16,000
___________________
___________
______________________

18. Good sold on H.P. A/C Particulars Rs To H.P. adjustment A/c 14,500
By HP stock A/c`
43,500
To Trading A/c
29,000
__________________
________________
_________________

19. Stock Reserve Account Particulars Rs To H.P. adjustment A/c 1,500
By balance b/d
To balance c/d
_________5,000
__________________
By H.P. adjustment A/c
_________
5,000

20. HP Trading Account Particulars Rs To stock with customers 4,500
By cash a/c
30,000
To instalments due
2,500
By goods repossessed a/c
250
To goods sold on H.P. a/c
43,500
By HP stock a/c
15,000
To stock reserve a/c
5,000
By instalment due a/c
To hire expenses
By stock reserve a/c
1,500
To net profit
10,000
By good sold on H.P. a/c
14,500
___________65,750
______________________
_________
65,750
____________________

21. Thank You