HP Agreement

columbia

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

stevef

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.

columbia

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

AK002

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.