Page 264 - Accountancy_F5

Dr Statement of profit or loss account Cr
Dates Details TZS Dates Details TZS
“000” “000”
31 Dec. 2018 Hire purchase interest 6,000
st
31 Dec. 2018 Gross profit on hire purchase trading 20,000
st
FOR ONLINE READING ONLY
31 Dec. 2019 Hire purchase interest 4,000
st
31 Dec. 2020 Hire purchase interest 2,000
st

LANGUAGE EDITING
Preparation of hire purchase interest suspense account
LANGUAGE EDITING
The hire purchase interest suspense account is prepared in case the total interest should
be determined, recognised, and recorded in total at the time of signing the hire purchase
agreement. In this case the total interest not yet accrued is posted to the hire purchase
interest suspense account. In each of the subsequent due dates, interest accrued for that
period is transferred from hire purchase interest suspense account to the hire purchase
interest income account.
Any balance in the hire purchase interest suspense account represents the amount to
be apportioned to hire purchase interest income account for next periods. At the end
of the year, the balance in the suspense account will be shown as a deduction from the
hire purchase account. The standard journal entries in the books of hire vendor are
summarised as follows:

S/N Transaction Accounting entries

1. When goods are sold Dr Hire purchaser account xx
and delivered on hire (Cash price + Total interest)
purchase terms Cr Hire purchase sales account (cash price) xx
Cr Hire purchase interest suspense account
(total interest) xx
2. When down payment Dr Bank account xx
is received Cr Hire purchaser account xx

3. When instalment is Dr Bank account xx
received Cr Hire purchaser account xx
4. To record interest for Dr Hire purchase interest suspense account xx
a particular financial Cr Hire purchase interest income account xx
period With the interest portion charged for the financial
period

Student’s Book Form Five
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