Difference between Hire purchase & Installment PDF

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Summary

Explained difference between Hire Purchase & Installment & Lease Sales...

Description

Hire purchase

Installment Purchase

Lease

1

Ownership is transferred in part as the payment is done

Ownership is never transferred

2.

Purchaser is known as Hire purchaser & seller is known as vendor Depreciation is given passed in the books of Buyer (Hire purchaser)

Full ownership of the goods is transferred to the buyer on down payment Buyer and Seller

3.

Depreciation is passed in the books of buyer

Purchaser of lease is known as lessee and seller of lease is known as lesser Depreciation Is passed in the books of lesser

Full Cash Price Method/ Credit Purchase Method/ Sales method: Entire asset is transferred to the purchaser on the purchase date and interest is accrued on the date of EMI

Interest Suspense Method: Entire asset is transferred to the purchaser on the purchase date and entire interest for the installment period is accrued on the purchase date itself. This interest is accrued in the name of interest suspense account.

Journal Entries for Credit Purchase Method: Transactions On the date of Purchase

Down payment Installment payment (Monthly/ Quarterly/ Half yearly/ Yearly)

At the end of the year

In the books of Buyer/Purchaser Asset a/c..........Dr To Seller a/c (Full asset value) Seller a/c.........Dr To Cash/Bank a/c Interest a/c......Dr To Seller a/c (interest accrued)

In the books of Seller Purchaser a/c.......Dr To Sales a/c (Full value of goods) Cash/ Bank a/c.....Dr To Purchaser a/c Purchaser a/c......Dr To Interest a/c (Interest accrued)

Seller a/c.......Dr To Cash/ Bank A/c (Installment amount) Depreciation a/c........Dr To Asset a/c

Cash/Bank a/c..... Dr To Purchaser a/c (Installment amount)

P&L...... Dr To Interest a/c To Depreciation a/c

Interest a/c......Dr To P&L a/c

Journal Entries for Interest Suspense Method: Transactions On the date of Purchase

In the books of Buyer/Purchaser Asset a/c..........Dr (Full Value of Asset) Interest Suspense a/c......Dr (Full interest) To Seller a/c

Down payment

Seller a/c.........Dr To Cash/Bank a/c (For down payment amount) Interest a/c......Dr To Interest Suspense a/c (interest accrued)

Installment payment (Monthly/ Quarterly/ Half yearly/ Yearly)

At the end of the year

In the books of Seller Purchaser a/c.......Dr To Sales a/c (Full Value of Goods) To Interest Suspense a/c (Full Interest) Cash/ Bank a/c.....Dr To Purchaser a/c Interest Suspense a/c......Dr To Interest a/c (Interest accrued)

Seller a/c.......Dr To Cash/ Bank A/c (Installment amount) Depreciation a/c........Dr To Asset a/c

Cash/Bank a/c..... Dr To Purchaser a/c (Installment amount)

P&L...... Dr To Interest a/c To Depreciation a/c

Interest a/c......Dr To P&L a/c...