• Enter a Hire Purchase

    A hire purchase (HP) transaction allows you to take an item, such as a bike, and pay any finance owing on it, while being able to use it.

    An HP can be classed as a loan, which means with Cashmanager RURAL you can claim GST on an item before it’s fully paid, while still being able to reconcile any associated transactions to the bank statement.

    So that the transaction is entered correctly into Cashmanager, locate the bill and make a note of the following:

    • What is the purchase price of the item (GST inc)?

    • Is there a deposit and if so, how much?

    • Is there a trade in and if so, what is the value inc GST?

    • What is the amount remaining to pay?

    Below are two of the most common types of HP transactions that the team on our Helpdesk come across.

    When the HP is 100% financed

    Scenario
    Adam has purchased a new Honda TRX420FM1 for $13,794.25 incl gst.
    He traded a Honda TRX500FPA for $5,000.00 inc GST.
    He hasn't paid a deposit which means there is a remaining amount of $8,794.25.
    This will be paid over 24 months at $366.42 per month.

    1. Create a Expense transaction.

    2. The Transaction Date field should reflect the date the purchase took place.

    3. The Amount field should be $0.00 - no money has passed through the farm account.

    4. Record the name of the Other Party.

    5. Allocate a Category Code and Extended Code for the item.

    NOTE: Please check with your accountant about what code you should use.
    1. Record the full GST inc. purchase price of the item in the Code amount field.

    2. Write a clear note of the item. For example, for a quad bike record the model and serial number.
      This will make it easier for your accountant to reconcile it in the end of year accounts and add it to your asset register.

    Note the remaining amount highlighted in yellow. This will decrease as more information is added to the transaction

    1. Click OK.

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    An income line will be created to balance the transaction back to $0.00.

    Note the Code amount field populates with the remaining amount that was highlighted in yellow.

    1. Allocate a category and extended code to the trade-in.
    CHECK: Talk to your accountant about what the GST type should be for the trade-in amount.
    1. Record the full GST inc. trade-in price as a Income amount.

    2. Write a clear note of the trade-in ie. the model and serial number.
      This will make it easier for your accountant to reconcile it in the end of year accounts and remove it from the asset register.

    The remaining amount matches the amount left to pay on the quad.

    1. Click OK.

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    1. Code the remaining amount to CA: H (Capital: Hire Purchase). This is the default code for a hire purchase transaction.

    2. Write a clear note indicating what this HP is for. Especially if you have more than one HP.

    3. Click OK to complete the transaction.

    0_1499117608927_89b41b2e-8e76-45bb-93da-ccb9438b4d88-image.png

    When a deposit has been paid

    Scenario
    Adam has purchased a new Honda TRX420FM1 for $13,794.25 inc gst.
    He traded a Honda TRX500FPA for $5,000.00 inc gst.
    A deposit of $3,500.00 was paid.
    The amount remaining on the HP is $5,294.25 which will be paid over 18months at $394.12 per month.

    NOTE: If you use bank feeds or manually import transactions, you don't need to create an expense transaction. Simply edit the bank transaction and begin to dissect it into a multi-line transaction.

    Follow steps 2 - 8 with the exception of step 3.

    The Amount should reflect the deposit $3,500.00 - this is what will go through the farm bank account.

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    The new line will be created to balance the transaction back to $0.00.

    Follow steps 9 - 15 to complete the transaction.

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    Why is the remaining HP amount displayed as income?

    Think of the HP as a loan.

    The remaining amount needs to be displayed as income because it is similar to introduced funds or a loan drawdown.
    It appears as income to be used against the purchase.

    As the monthly payments are made, the amount owing on the item will decrease, similar to a loan repayment

    What about future payments?

    Each monthly payment should be coded back to CA: H and be exempt from GST. Remember the claim has already been completed so you don't want to accidentally claim it again.

    Because the payment will be recorded in the bank account, treat this as a normal single lined transaction.

    The ABC report (Analysis by Code) is a great way to see how the Hire Purchase code interacts with the remaining loan amount and future payments. (see below).

    TIP: You can split the payments so they show the principle amount and interest amount separately. Check with your accountant if they want you to record the HP transactions as split payments.

    0_1499118332514_02550a56-bd25-4b1a-ac20-67b3b9602005-image.png

    Other Relevant Topics

    Split transactions
    Code analysis report
    Autocode
    Bank feeds
    What items are GST exempt?


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