Record a Hire Purchase agreement in QuickBooks

This account tracks the total amount you owe to the finance company.

1. Follow this link to complete the steps in product
2. Select New account.
3. For the Account type, choose either:
   • Current liabilities if the agreement is for 12 months or less.
   • Non-current liabilities if the agreement is for more than 12 months.
4. For the Detail type, select Loan Payable or Notes Payable (this is the UK term for a loan).
5. Give the account a specific name, for example, HP Agreement - Ford Transit.
6. Leave the opening balance field empty.
7. Select Save.

This account records the item you're buying.

1. Follow this link to complete the steps in product
2. Select New account again.
3. For the Account type, choose Tangible assets for physical items that you will own and use for more than one year. This is the most common choice for items acquired through a hire purchase agreement e.g. Vehicles, machinery, computer equipment.
4. For the Detail type, choose the most appropriate category, such as Vehicles.
5. Give the account a specific name, for example, Ford Transit - AB25 CDE.
6. Leave the opening balance field empty.
7. Select Save.

1. Select + New or + Create., then Journal entry.
2. Set the Journal Date to the start of the hire purchase agreement.
3. Line 1 (Asset):
   • In the Account column, select the Fixed Asset account you created (e.g., Ford Transit - AB25 CDE).
   • Enter the full value of the asset (excluding VAT and interest) in the Debits column.
4. Line 2 (Loan):
   • In the Account column, select the HP Liability account you created (e.g., HP Agreement - Ford Transit).
   • Enter the same value in the Credits column.
5. Select Save.

This journal shows that you own the asset and owe the same amount to the lender. It will appear on your balance sheet as both an asset and a liability.

1. Select + New or + Create., then Expense.
2. Select the Payee (the finance company).
3. Choose the Payment account and Payment date.
4. In the Category details section, enter each part of your payment on a separate line.
5. Line 1 (Deposit):
   • Category: Select your HP Liability account.
   • Description: Deposit for [Asset Name].
   • Amount: Enter the deposit amount.
   • VAT: Select No VAT.
6. Line 2 (Fees):
   • Category: Select an expense account like Bank Charges or create a new one called Loan Arrangement Fees.
   • Description: Arrangement Fee.
   • Amount: Enter the fee amount.
   • VAT: Select 20.0% S if VAT was charged on the fee.
7. Under the subtotal, in the VAT summary box, manually change the VAT amount to match the total VAT shown on your HP invoice. This is because you claim all the VAT on the asset's value upfront.
8. Check that the Total matches your initial payment amount.
9. Select Save.

Note: If your initial payment was for VAT only, you can record this as a VAT-only transaction.

Your hire purchase agreement is now fully recorded. Each month, the recurring expense will automatically post, reducing your liability and recording the interest cost.

1. Select + New or + Create., then Expense.
2. Fill in the Payee, Payment account, and the first Payment date.
3. In the Category details section, split the payment across two lines.
4. Line 1 (Capital):
   • Category: Select your HP Liability account.
   • Description: HP Payment - Capital.
   • Amount: Enter the capital portion of the payment.
   • VAT: Select No VAT.
5. Line 2 (Interest):
   • Category: Select your Interest Paid expense account.
   • Description: HP Payment - Interest.
   • Amount: Enter the interest portion of the payment.
   • VAT: Select No VAT.
6. At the bottom of the page, select Make recurring. Set the schedule to match your payment frequency (e.g., monthly on the 1st) and save the template.

Your hire purchase agreement is now fully recorded. Each month, the recurring expense will automatically post, reducing your liability and recording the interest cost.