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Hire Purchase System

This document provides an overview of the Hire Purchase System, detailing the journal entries for both hire purchasers and vendors with and without interest suspense accounts. It outlines the key components, features, and differences between hire purchase and installment purchase systems. The document emphasizes the conditions under which ownership is transferred and the implications of default on payments.

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9 views

Hire Purchase System

This document provides an overview of the Hire Purchase System, detailing the journal entries for both hire purchasers and vendors with and without interest suspense accounts. It outlines the key components, features, and differences between hire purchase and installment purchase systems. The document emphasizes the conditions under which ownership is transferred and the implications of default on payments.

Uploaded by

Ritika
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Topic

Introduction & Overview of


Advanced Accounting
Learning Objectives

In this session, you will be able to:

• Journal Entries in the books of Hire Purchaser with


Interest Suspense Account
• Journal Entries in the books of Hire Purchaser without
Interest Suspense Account
• Complete Journal in the Books of Hire Purchaser
• Journal Entries in the books of Hire Vendor with Interest
Suspense Account
• Jounal Entries in the books of Hire Vendor without
Interest Suspense account
• Complete Journal in the books of Hire Vendor
Journal Entries in the books of Hire Purchaser with
Interest Suspense Account

 In the books of Hire Purchaser


• Cash Price Method
• Interest Suspense Method

 In the books of Hire Vendor


• Sales Method
• Interest Suspense Method
Journal Entries in the books of Hire Purchaser with
Interest Suspense Account
Journal Entries in the books of Hire Purchaser with
Interest Suspense Account
Meaning of Hire Purchase System

 Under this system the goods are delivered to the purchaser


at the time of agreement before the payment of instalments
but the title on the goods is transferred after the payment of
all instalments as per the hire purchase agreement.
 The special feature of a hire-purchase transaction is that
the payment of every instalment is treated as the payment
of hire charges by the purchaser to the hire vendor till the
payment of the last instalment.
Components of Hire Purchase System

Hire Purchaser/Hirer/Buyer

Vendor/Hiree

Hire Charges

https://www.indiafilings.com/learn/gst-on-hire-purchase-transaction/

Down Payment
Essentials of Hire Purchase System

Delivery of Goods to Hire


Purchaser

HIRE PURCHASE
Payment in Installments SYSTEM

In Case of Default, Seller


can Repossess Goods
Features of Hire Purchase System

 Hire Purchase is an agreement between two parties


called Hire Vendor & Hire purchaser
 The agreement provides for parting the possession of
goods, by the seller, with an option to purchase or hire
the goods by buyer.
 Payment for the goods will be made by the hire
purchaser in installments.
 If the hire purchaser pays all the installments, the
ownership of the goods will be transferred on payment
of last installment, resulting the transaction in
‘purchase’. https://www.linkedin.com/pulse/hire-purchase-i-nigel-romano

 If hire purchaser stops paying the installments, the hire


vendor repossesses the goods resulting the transaction
in ‘hire’.
 In such case, each earlier installment paid will be
treated as hire charges
Difference Between Hire Purchase and Installment
Purchase
Factors Hire Purchase System Installment System

Hire purchase is a type of installment purchasing An installment payment system is a method of


Meaning agreement that allows individuals or businesses paying for goods or services in which the total
to acquire assets. cost is divided into multiple payments.

Ownership is transferred to the purchaser only Ownership typically begins from the outset of the
Ownership Status after the final payment is made. purchase.

The asset being purchased serves as collateral for Generally does not require collateral since
Asset Security the agreement. ownership starts immediately.

Fixed or variable payments structured until full Typically fixed payments over a predetermined
Payment Structure ownership. period.

May or may not include interest, depending on


Interest or Fees Interest or fees may be included in each payment.
the agreement.

A down payment is more common in hire-


An installment payment system may or may not
Down payment purchase agreements, as it helps to secure the
require a down payment.
loan and reduces the seller's risk.

Hire-purchase agreements may be subject to


specific regulations depending on the jurisdiction.
It is generally less regulated than hire-purchase
Regulation These regulations may protect the buyer's rights
agreements.
in case of default.

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