HP charges

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi, Here is a Q.

With regards to HP chrages to show them against creditors you cr creditors and then Dr the expenses but do I put the whole lot (its a 3 year agreement) to the P&L or do I post it to prepayments and then journal an amount monthly?

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HP charges

    Hi Cat

    From what I understand from reading about HP, what you would do is Dbit the charge for the year to the P&L account and one years worth of charges to the current liabilites and the rest to long term liabilities in the balance sheet. Interest for the year is also charged to the P&L account.

    Hope that answers it for you.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HP charges

    Hi Cat,

    Sorry I wanted to put a mistake right!

    I had a ten minute arguement with my father about this! (He's doing ACCA)

    Anyhoo, the way it goes is.

    The item gets treated as a Fixed asset and is depreciated as normal. The interest for the year is charged to the P&L account. The amount you've paid over the year is simply removed from the long term liability in the balance sheet. Also the amount you'll be paying in the next year will go under the current liabilites.

    Sorry!!!

    Hope you find it easier to understand!

    Michelle

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