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Hire Purchase SystemStock and Debtors Method
Mahesh Chandra SharmaAssociate Professor
Department of CommerceShaheed Bhagat Singh Eve. College
(University of Delhi) India
Important TermsHire Purchase Stock
It is also called “Instalments Not Due” or “Stock with Hire Purchase Customers.”
Hire Purchase DebtorsIt is also called “Instalments Due but not received” or “Instalments Overdue.”
Shop StockIt is the unsold goods in the godown of the firm.
Goods RepossessedIt is goods repossessed from Hire Purchase Customers when they become defaulters.”
Important Terms (Contd.)Cost Price
It is cost of goods to the Hire Vendor.Hire Purchase Price
It is the price at which Hire Vendor sells goods to Hire Purchasers on hire purchase basis.
LoadingIt is the difference between Hire Purchase Price and Cost Price. It includes profit and interest. (Loading = HPP – Cost Price)
Ledger Accounts to be preparedShop Stock A/cHire Purchase Stock A/c
OR Instalments Not Due A/c Hire Purchase Debtors A/cGoods Repossessed A/cHire Purchase Stock A/cStock Reserve A/c
Journal EntriesDate Particulars Amt.
(Dr.)Amt. (Cr.)
(1) For transfer of Purchases to Shop Stock A/cShop Stock A/c Dr. X x
To Purchases A/c X x(2) For transfer of Cost of Goods Sold on Hire
Purchase Basis to H P Stock A/cHire Purchase Stock A/c
DR.Xx
To Shop Stock A/c Xx(3) For Loading on Goods Sold on Hire
Purchase BasisHire Purchase Stock A/c
DR.Xx
To HP Adjustment A/c Xx
Journal Entries (Contd.)Date Particulars Amt.
(Dr.)Amt. (Cr.)
(4) For transfer of Down payment and instalments made due during the yearHire Purchase Debtors A/c
DR.X x
To Hire Purchase Stock A/c X x
(5) For transfer Down payment and instalments received due during the yearBank A/c
DR.Xx
To Hire Purchase Debtors A/c Xx
Journal Entries (Contd.)Date Particulars Amt.
(Dr.)Amt. (Cr.)
(6) For Goods repossessed on default of instalmentsGoods Repossessed A/c DR. Xx
To Hire Purchase Debtors A/c XxTo Hire Purchase Stock A/c Xx
Note (i)
Amount of Instalments due but not received against Goods Repossessed shall be credited to Hire Purchase Debtors A/c
(ii) Amount of Instalments not yet due against Goods Repossessed shall be credited to Hire Purchase Stock A/c
Journal Entries (Contd.)Date Particulars Amt.
(Dr.)Amt. (Cr.)
(6) For loss on valuation of Goods repossessed Hire Purchase Adjustment A/c
DR.Xx
To Goods Repossessed A/c Xx(7) For Loading on HP Stock at the beginning
of the yearStock Reserve A/c
DR.Xx
To Hire Purchase Adjustment A/c Xx(7) For Loading on HP Stock at the end of the
yearHire Purchase Adjustment A/c DR. Xx
To Stock Reserve A/c Xx
Journal Entries (Contd.)Date Particulars Amt.
(Dr.)Amt. (Cr.)
(8) For Hire Purchase Expenses paidHire Purchase Expenses A/c DR. Xx
To Bank A/c Xx(9) For closing Hire Purchase Expenses A/c
To Hire Purchase Adjustment A/cDR.
Xx
To Hire Purchase Expenses A/c Xx(10) For net profit on Hire Purchase business
during the yearHire Purchase Adjustment A/c DR. Xx
To Profit and Loss A/c XxNote: In case of Net Loss, the above entry shall
be reversed.
Journal Entries (Contd.)Date Particulars Amt.
(Dr.)Amt. (Cr.)
(11) For Repairing Expenses paid on Goods RepossessedGoods Repossessed A/c DR. Xx
To Bank A/c Xx(12) For sale of Goods Repossessed
To Bank A/c DR. XxTo Goods Repossessed A/c Xx
(13) For net profit on sale of Goods RepossessedGoods Repossessed A/c DR. Xx
To Profit and Loss A/c XxNote: In case of Net Loss, the above entry shall
be reversed.
Ledger Accounts – Format and Hints
Date Particulars Amount
Date Particulars Amount
1.4.20x1
Balance B/d x x x 31.3.20x2
HP Stock A/c (Cost of Goods sold on HP basis)
x x x
31.3.20x2
Purchases x x x Balance c/d x x x
XXX XXX
Shop Stock A/c• This account is always prepared at cost.• It is usually prepared to find cost of goods sold on Hire
Purchase basis.• Format is given below:
Hire Purchase Stock A/c• This account is always prepared at Hire Purchase Price.
• Some item may be missing, which will be balancing figure.
• To find Cost of Goods Sold on HP basis, refer “Shop Stock A/c” and to find “Down Payment and Instalments made due during the year’ refer to HP Debtors A/c.
• Format is given on next slide.
Hire Purchase Stock A/cDate Particulars Amt. Date Particulars Amt.1.4.20x1
Balance B/d x x x 31.3.20x2
HP Debtors A/c(Down payment and instalments made due during the year)
x x x
31.3.20x2
HP Stock A/c (Cost of Goods sold on HP basis)
x x x 31.3.20x2
Goods Repossessed A/c (Instalments not due against GR)
x x x
HP Adjustments A/c (Loading on goods sold on HP basis)
x x x 31.3.20x2
Balance c/d x x x
X X X X X X
Hire Purchase Debtors A/cDate Particulars Amt. Date Particulars Amt
.1.4.20x1
Balance B/d x x x 31.3.20x2
Bank A/c (Down payment and instalments received due during the year)
x x x
31.3.20x2
HP Debtors A/c(Down payment and instalments made due during the year)
x x x 31.3.20x2
Goods Repossessed A/c (Instalments due but not received against GR)
x x x
31.3.20x2
Balance c/d x x x
X X X X X X
Hire Purchase Adjustments A/cDate Particulars Amt. Date Particulars Amt.31.3.20x2
Stock Reserve A/c (Loading on Closing HP Stock)
x x x 31.3.20x2
Stock Reserve A/c(Loading on Opening HP Stock)
x x x
31.3.20x2
Goods Repossessed A/c (Loss on valuation of GR)
x x x HP Stock A/c (Loading on goods sold on HP basis)
x x x
31.3.20x2
Profit and Loss A/c (Profit)
x x x 31.3.20x2
Goods Repossessed A/c (Profit on valuation of GR)
x x x
31.3.20x2
Profit and Loss A/c (Loss)
x x x
X X X X X X
Goods Repossessed A/c
• This account is prepared for recording goods repossessed, its valuation, repairs and sale of it.
• Loss on valuation of Goods Repossessed (Amount of Instalments outstanding, due and not due both, against Goods Repossessed − Valuation of Goods Repossessed) is transferred to HP Adjustment A/c.
• Profit or Loss on sale of Goods Repossessed (Sale Price of GR − Valuation of GR) is transferred to P and L A/c.
Goods Repossessed A/cDate Particulars Am
t.Date Particulars Amt
.
1.4.20x1
HP Debtors A/c (Instalments due but not received against GR)
x x x
31.3.20x2
HP Adjustments A/c (Loss on valuation of Goods Repossessed)
x x x
31.3.20x2
HP Stock A/c (Instalments not due against GR)
x x x
Balance c/d (Valuation of GR)
x x x
XXX XXXBalance b/d x x
xBank A/c (Sale of GR)
Bank A/c (Repair Charges)
x x x
Profit and Loss A/c (Loss on sale of GR)
x x x
Profit and Loss A/c (Profit on sale of GR)
x x x
XXX XXX
Stock Reserve A/c
Date Particulars Amt.
Date Particulars Amt.
31.3.20x2
HP Adjustments A/c ( transfer of Loading on Opening HP Stock)
x x x 1.4.20x1
Balance b/d(Loading on Opening HP Stock)
x x x
31.3.20x2
Balance b/d(Loading on Closing HP Stock)
x x x 31.3.20x2
HP Adjustments A/c (Creation of Loading on Closing HP Stock)
x x x
XXX XXX
• This account is prepared for recording loading on Opening and Closing HP Stock.
