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How to record a Hire Purchase agreement in QuickBooks Online

To start with you'll need to create some appropriate accounts. You can do this by going to Accounting on the left hand side navigation.  Choose Chart of Accounts, and click the green New button in the top right hand corner of the screen.

  1. If the Hire Purchase agreement is 12 months or less, create a Current Liability with Loans Payable as the detail type. If the Hire Purchase agreement is more than 12 months, create a Non-current Liability with Note Payable as the detail type.  Set the name as desired (eg Hire Purchase Van), leave the unpaid balance box empty, and save and close.
  2. Then create a Tangible Asset account with an appropriate detail type, most likely Vehicles. Again name as desired (eg Van Reg NU20REG), and leave the balance box empty. Once you have your accounts, create a Journal from the + New in the top left.
  3. Date the Journal with the day you made the agreement.On the first line, in the account column select the Tangible Asset account you've created, and add the Assets value to the  Debits Column.  If needed, add a note in the description line.

    On the second line, in the account column add your Liability account, the Credits column will auto populate once selected.  (If for whatever reason it doesn't, just add the assets value in here as well).  If required, put a note in the description line.

Record your initial payments

You've now recorded the assets value and the amount owed on the Hire Purchase. Now 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 Expense from the + New button.

  1. Select the correct payment account and date of the payment, you can also select a supplier in the payee box, but this can be left blank.
  2. In the category select the expense account you are using for fees and/or interest, and adjust amount appropriately, set the VAT to exclusive and select 20.0% S.
  3. If you've paid any amount off of the Asset at this point, add a second line, choosing the Hire Purchase Liability as your category, and enter the amount you have paid, selecting No VAT (0%)
  4. Below the subtotal, you will see a VAT box, adjust this to the correct VAT amount, the total should now equal your initial payment. You've now recorded your first payment including all VAT and expenses, you can Save and Close the transaction.

 

  • Note that if your initial payment is purely VAT and nothing else, you will need to record a 100% VAT transaction and this article can show you how.

Any future payments to your hire purchase can be recorded as an Expense with Hire Purchase Liability selected as category with No VAT  recorded against it.

 

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