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HP Agreement - How to record additional fees?

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Hello,

I am new to the forum and to accounting for more complicated transactions (so far, I have been recording mainly simple sales and purchases). I am about to record my first HP agreement for machinery my employer - a small business owner - purchased recently, and I would be grateful for your advice. My intended journal looks like this:

Dr Tangible asset                a

Dr VAT                               b

Cr bank (deposit paid)       c

Cr HP liability                    a + b – c

Is it correct? In addition, the HP document lists acceptance fee and option to purchase fee, stating they are included in instalments. I am not sure how to account for these two fees.

Thank you in advance for your help!

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By rmillaree
16th Apr 2021 08:53

Is it correct? - yes

"In addition, the HP document lists acceptance fee and option to purchase fee, stating they are included in instalments. I am not sure how to account for these two fees."

These would normally be entered at time of payment so the final fee would not show up till it is paid at the end

Dr finance costs
Dr vat (if applicable - normally only vat on one of two)
cr bank

Note it may be that the fees are mixed in with the hp payments in this case it would be

dr hp
cr bank

with full payment

then dr fees (and vat if applicable)
cr hp
on date of payment

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By mariannajane
16th Apr 2021 12:41

Thank you!

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By mariannajane
16th Apr 2021 15:05

Inevitably, I have a follow-up question. I have now worked out how the previous bookkeeper - who, sadly, suddenly passed away - was recording HP transactions. He was adding both additional fees to interest cost and spreading it all over the period of the agreement (on accelerated basis). Is this a way I can follow?

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