Good Morning,
I had set up on Solar Accounts, an HP agreement for the purchase of my last van, which had an opening balance. Having sold this van and paid the outstanding balance on the HP agreement, I am having difficulty in recording the rebate of interest charges from the finance company, therefore the account on Solar is still showing a balance of several hundred pounds.
As this rebate is on paper and not cash through my cheque account, how do I enter the data?
Mant thanks
John
Hi John,
My understanding is that when you record the original hire purchase loan, you should not include the interest component in the loan amount - only the value of the vehicle. You only record interest as an expense each month as it becomes due.
For example, say the van cost £4,800 plus £2,400 interest which you paid in monthly instalments of £150 over 4 years. You would initially record a loan for £4,800 allocated to the 'Motor Vehicles' asset account. Then each month you would record two payments - £100 to pay off the loan, and £50 to record the interest expense. Now lets say loan after three years you pay off the remainder of the loan: you simply record a payment from the cheque account to the loan account for the balance of the loan (£1,200).
Please note that I am not an expert on this topic - I recommend you check this treatment with your accountant.
Regards,
