In this article, you will learn how to record a hire purchase agreement in QuickBooks Online.
Step 1. Create the appropriate accounts
- Go to Transactions, select Chart of accounts (Take me there).
- Select New.
- Select the Account and detail type. If the Hire Purchase agreement is:
- 12 months or less, select Current liabilities with Loan Payable as the detail type.
- more than 12 months, select Non-current liabilities with Notes Payable as the detail type.
- Give the account a name (for example, Hire purchase van).
- Leave the unpaid balance empty, and Save and Close.
- In the Chart of accounts, select New.
- For the Account type, select Tangible assets.
- Select account with an appropriate detail type, most likely Vehicles.
- Give the account a name (for example, Van Reg NU20REG).
- Leave the balance field empty, select Save and Close.
Step 2. Create a journal entry
- In the navigation, select +New.
- Select Journal entry.
- Using the calendar, select the Journal date – this is the day you made the agreement.
- On the first row, in the Account column, select the Tangible asset account you created. In this case, it is 'Hire purchase van'.
- Add the assets value to the Debits Column. If needed, add a note in the description line.
- On the second row, in the Account column, add your Liability account and the Credits column will automatically populate (if it doesn't, just add the assets value in here as well). If required, put a note in the description line.
- Select Save and close.
Step 3. Record your initial payments
Now that you've recorded the assets value and the amount owed on the Hire Purchase, you can record your initial payments.
Your initial payment will most likely include all the VAT of the full purchase, plus any processing fees and the expected interest, all of which are on top of the Assets value. You may need to create specific expense accounts for the fees and interest, or you can use an existing one if appropriate.
To create the expense transaction:
- Select +New.
- Select Expense.
- The Payee field can be left empty. You can select a payee if you choose to.
- Select the payment account.
- Choose the payment date.
- In the category field, select the expense account you are using for fees or interest and adjust amount appropriately.
- From the Amounts are options, select Exclusive.
- In the VAT column, select 20.0% S (20%).
- If you've paid any amount off of the Asset at this point:
- Add a second line.
- Choose the Hire Purchase Liability as your category.
- Enter the amount you have paid.
- Select No VAT (0%).
- Below the subtotal, you will see a VAT box. Adjust this to the correct VAT amount. The total should now equal your initial payment.
- Select Save and close.
That's it! You've now recorded your first payment including all VAT and expenses.
Note: If your initial payment is purely VAT and nothing else, you will need to record a VAT only transaction.
Any future payments to your hire purchase, you can record this as an Expense with Hire Purchase Liability as the category with No VAT recorded against it.