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HP Agreement

columbiacolumbia Experienced MentorRegistered Posts: 580
Hi All

My mind has totally gone blank and I appear to be going round in circles today!

I am inputting some very late accounts and there is a HP agreement. It is made up of £22995 for the purchase of a Taxi and £7136.00 for the interest element.

I am using Sage so I assume I debit motor vehicles with £22995, credit Hire purchase with £30131.00 (both on the balance sheet) and debit HP interest with £7136 on the P&L.

When I make the monthly payments from the bank I know that I would credit bank, debit Hire purchase on the balance sheet with the monthly payment less the interest amount, but do I need to set up another balance sheet account to Debit the HP interest to?

Like I said, total brain freeze so help very much needed!!!

Thanks

Tracy

Comments

  • stevefstevef Well-Known CarmarthenRegistered Posts: 258
    Not a sage user,

    But Iwould dr motor vehicle £22,995 and credit Hp account (liability to pay in my world) with £22,995.

    When paying, credit bank with full amount, dr Hp in balance sheet with principal and dr HP Interest in P&L with interest element. Treat as a Finance Lease.
  • columbiacolumbia Experienced Mentor Registered Posts: 580
    Thanks for your reply

    Yes, this does seem to make sense, but I thought I would need to credit the HP account with the full amount of the agreement including the interest, which is why I was possibly over confusing things!!

    I will set this up on Sage now, as it obviously has the effect of reducing the liability down to zero in the balance sheet, and posting an expense to the P&L for the interest.

    Thanks again

    Tracy
  • AK002AK002 Font Of All Knowledge Registered Posts: 2,492
    Only recognise the interest against the P&L when it's paid by splitting it out of the monthly payments.

    So DR MV with the MV cost and CR HP with the capital cost only.
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