Hire Purchase/Interest owed

King of the Mountains

Please could somebody tell me, do i account for the interest owing on hire purchase in long term liabilties, when the payment is taken out the bank i enter two payments into sage one to reduce the amount of the capital owing and one to the p&l for the interest equating to the amount credited from the bank. :confused1: Thanks

sarahwilson

In sage you would put 2 entries in, one to reduce the amount you owe with the relevant nominal (eg cars, plant, etc) and one to show the HP interest paid, i think thats nominal 7904. All our HP payments come directly out of the bank and thats how I do it.

King of the Mountains

Thanks Sarah, I think we do the same. So therfore we don,t show the hp interest owed over the loan term in long term liabilties?

catja

Hi could you just clarify that for me

If the HP payment that comes out of the bank is for say £500 (including interest, do you work out the interest part and then put put the capital bit between bank and long term liablilites and put the interest between bank and HP interest on P&L?

Also when entering a new HP into the accounts, do you enter purely the capital element as a journal between the fixed assets and the HP loan in the long term liabilities and ignore the interest at this stage?

Thanks - sorry for hijacking your post

King of the Mountains

The payment comes out the bank, say £500. I make two entries. 1 I credit the bank with the amount of interest and debit the expense. 2 I credit the bank with the capital repayment and debit the appropriate long term liability which does not incorporate the cost of the item including the interest.
However I was speaking with a financial controller and maybe this a bit too much information but apparenty I need another account inthe balance sheet for Deferred Interest which accomodates the interest owed as another long term liability, it gets worse, 12 months of interest needs to be shown as a short term liability. so when I get to my year end i will put 12 months of interst into short term liabilties and what ever else is owed into Deferred interest. I think I'll just do it at year end and forget about transferring the amounts between the accounts on a monthly basis, but I suppose i could set up the journals required in recurring entries in sage.