• Rural Community

    HP transactions

    A hire purchase 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.

    When advising clients how to record an HP in their database, ask the following questions to determine what needs to be included:

    • What amount has gone through the farm bank account?

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

    • Are there any trade-ins?

    • Are there any other fees i.e. Admin?

    • What are the payment terms for the remaining amount i.e. XX amount over XX months?
      This information will be treated differently to ensure GST isn't double claimed.

    Below are the two most common types of HP transactions that we come across.

    Scenario 1: 100% borrowed

    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.

    Follow the step-by-step instructions below to record this accurately in Cashmanager:

    NOTE: We don't recommend what codes to use, though if the type of transaction is fairly obvious, we can suggest a code. Always tell the client to check with their accountant.
    1. Create a Expense transaction.

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

    3. The Amount 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 new quad.
      Because it's a capital purchase, the best codes to use are CA:V (Capital: Vehicles).

    Make sure the GST type on this code is B. it will calculate 15% of the full amount to claim on the GST return.

    1. Record the full GST inc. purchase price of the quad in the Code amount field.

    2. Write a clear note of the quad i.e. the model and serial number.
      This will make it easier for the accountant to reconcile it in the end of year accounts and add it to the business' asset register.

    Note the remaining amount highlighted in yellow. This will decrease as we work through the transaction.

    1. Click OK.

    0_1499115984278_2cdad435-f932-4f62-8486-dea4742bc101-image.png

    An income line will be created to balance the transaction back to $0.00.
    Note the Code amount populates with the remaining amount that was highlighted in yellow.

    1. Code the Trade-in i.e. to CA:V
      The GST type should be B as the GST would have been claimed on the trade-in when it was originally purchased.
      Therefore, the GST should be declared on the sale of the quad.

    2. Record the full GST inc. trade-in price as a Income amount.

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

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

    1. Click OK.

    0_1499116784841_308aa1c4-4ede-4c31-9221-f08c95e2535f-image.png

    1. Code the remaining amount to CA: H (Capital: Hire Purchase).
      The code H defaults to sit in CA, though you might find some people prefer to move it to sit in PR (Principal).

    2. Write a clear note indicating what this HP is for. Especially if the client has more than one HP.

    3. Click OK to complete the transaction.

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

    Scenario 2: Deposit put down

    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 the client uses bank feeds or manually imports transactions, they 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.

    0_1499132218091_cc841c51-36fe-453a-a840-2a1c0fd4fa6f-image.png

    The new line will be created to balance the transaction back to $0.00.
    Note the Code amount populates with the remaining amount that was highlighted in yellow.

    Follow steps 9 - 15 to complete the transaction.

    0_1499132447861_faf5f5b6-d699-4880-8cda-4b30722c9241-image.png

    Why is the remaining HP an income amount?

    Think of the HP as a loan.

    A loan is usually called 'funds introduced' or if you've ever taken a loan with your bank it might be called 'loan drawdown'.
    It appears as income to be used against the purchase.

    With an HP, though there isn't an actual amount to draw down, we still need to record the amount to pay as income.

    As the monthly payments are made, this will reduce the amount owing on the bike, kind of like a loan repayment.

    What next?

    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).

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


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