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Hire Purchase

Definition : 

• Hire purchase is a form of finance. Essentially you have bought the item and used a loan (from the finance company) to pay for it.

Accounting for Hire Purchase :

For accounting point of view both hire purchase and  instalment payment system are same. Before accounting, we should know following things :-

• a) Cash price is that price which will be paid if any asset is purchased on cash without installment
• b) Hire price = Cash price + Interest for risk of giving asset on instalment
• c) Down payment = Payment at the beginning of deal of hire purchase

Benefits of Hire Purchase:

• Kind to your cash flow
• Access High – Spec Assets
• Lower Interest Than Other Funding Options
• It is possible to claim capital allowance against taxes