CRS Content Team
Understanding financed or deferred payments
Whether you're buying a new vehicle or deferring fertiliser, you can enter this information into your Cashmanager RURAL farm business before the final payment hits the bank.
What is the difference between an HP and a deferred expense?
A hire purchase (HP) transaction allows you to take an item, such as, a tractor, and pay any finance owing on it, while being able to use it.
A 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.
A deferred expense is an agreement between you and your supplier to delay payment for supplies, which is usually paid in one sum.
Because a deferred expenses isn't necessarily classed as a loan, you should check with your Accountant whether you can claim GST based on the purchase date rather than the payment date.
Tip: Add a new HP into a budget before committing to your purchase so you can make an informed business decision. Read here for more information - create a budget.
Entering transactions correctly will give a true view of your cashflow with income and expenses.
Follow these steps to enter a HP:
Step 1: Read the bill
- > Locate the hire purchase information on the bill so you can enter the transaction
- What is the full GST incl amount for the tractor?
- Was there a deposit? If so, how much?
- Is there a trade in? If so, what was the value incl GST?
- What is the amount remaining to pay?
Johnny and Steph purchase a John Deere 8345R tractor
The purchase price was $351,764.25 incl GST
They paid a deposit of $40K
There was a Trade in of a John Deere 5075E tractor $11,500K
The amount remaining to pay is $301,764.25 incl GST
Step 2: Enter the HP transaction
A HP transaction will be a multiple line transaction to show what is already paid and what is left to pay.
Line 1 of the transaction - record the HP details and the initial deposit
Check you’re in the current financial year then enter the deposit as an expense.
In this scenario a $40K deposit was paid.
- Enter the Bank details to match your statement. The Transaction date is the date the deposit was paid and the Amount is how much deposit was paid. (Note: if there was no deposit the Transaction date would be the trade-in or first payment date and Amount would be $0).
- Code the transaction with the type of purchase the HP was, in this scenario the tractor is coded as CA for Capital and V for Vehicle. Make sure GST is coded as B this means the GST will be claimed in the next GST return.
- Enter the Code amount as the purchase price of the item including GST
(if this shows as excluding gst on your invoice, enter the amount then automatically add gst by pushing <Ctrl +>). This is entered as an expense.
- Add a meaningful note. In the example we can see the HP is for a specific tractor and this part is the deposit.
- You will see the transaction is not yet balanced and more lines need to be entered. You can also see GST amount of - $45,882.29 that will be included in the next GST return as a GST credit.
Line 2 of the transaction - enter any trade in amounts
If there is no trade in skip this step.
In the below scenario there was a trade in of a John Deere utility tractor priced at $11,500K this is entered as income.
The Transaction date and Amount will automatically carry over from the first line
2. Enter the Code details of the purchase, this will be the same as what the trade-in item was originally coded as when purchased
3. In the Code amount enter the trade in amount this needs to be inclusive of GST and entered as Income
4. Add a meaningful note. In the example we can see the specific tractor that was traded in
5. The remaining amount should match the financed amount on the invoice, that is, what you have left to pay in this scenario $300,264.25. If not, check you have entered this line correctly The trade in must be entered as income and inclusive of GST. You can also see an amount of GST that will be paid in the next GST return - $1,500.00.
Line 3 of the transaction - enter the remaining HP amount
Entering the remaining HP amount should make the transaction balance so the remaining amount is $0.
In the below scenario there is $300,264.25 remaining to pay on the HP. This is entered as income and exempt of GST.
- The Transaction date and Amount will automatically carry over from the first line.
- Enter the Code details as PR (for Principle) as an HP is a type of loan and H (for Hire Purchase), select E as HP remaining amounts are exempt of GST.
- In the Code amount enter the remaining amount as Income.
- Add a meaningful note. In the example we can see this line is for the amount remaining on the HP.
- The remaining amount should now be $0 if not check your transactions. Have you entered each line correctly as expense or income and has GST been included?
Step 3: Code the HP payments as they come in from your bank feeds/statements
- > The HP payments are entered as an expense and are GST exempt. Make sure you use the same code details that were used in the original purchase transaction.
The payment plan spreads the remaining amount of $301,764.25 into monthly payments of $7328.42 over 48 months.
- Your bank statement shows the first payment has been made on the 28/03/2016 of $7328.42
- Enter other payments as they are paid and appear on your bank statements.
- If you manually enter transactions, enter the Bank details as they show on the bank statement. The Transaction date is the date payment was made (20/03/2016) and the Amount of the payment ($7328.42).
- The Code details, PR:H, are the same as the remaining amount of the HP. These payments will be matched to the remaining amount when an analysis by code report is run. From this report you will be able to see the amount left to pay at any point in time. GST is always exempt on hire purchase payments as they are a loan.
- Code amount is the amount that was paid, this should match the Amount so they balance each other to a remaining amount of $0.
- Add a meaningful note. In this example, we can see it’s a HP payment for a specific tractor.
- The remaining amount should balance to $0.
Note: 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.
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