Good eveing.... I am a little confused and wondered if there was anyone who could help. About twelve months ago we changed over to the Cash Accounting VAT systems it was a bit of a nightmare but have now settled into it. However we have just bought a new van using a finace agreement and I am struggling to complete the journal so that the VAT is acconted for correctly.
The van cost £13,350 plus vat ---- VAT 20% £2670.00 and the Road licence £265.00 A depost of £4,486.00 was paid leaving £11,799.00 for finance. The interest £1062.12 and the HP charges £348.00 giving a total for HP of £13,209.12
My Journal is as follows but am not sure if the T codes for VAT are correct for the cash system... I'm totally guessing at it! debit £13,350 (T1) in 0050 Motor vehicles debit £2670.00 (T1) 2201 Vat Liability debit £265.00 (T9) 7302 road fund licence debit £1410.12 (9) 0050 motor vehicles (this is the fee and intest from hp company Credit £2670.00 (T1) to 1202 bank (this to cover VAT paid so I put T1 code Credit £265.00 (T9) 1202 bank for road fund licence (no vat) credit £1551.00 (T9) 1202 Bank for the rest of the deposit credit £11,799.00 (T9) 2310 Hire Purchase credit £1062.12 (T9) 7904 HP interest Credit £348.00 (T9) 2310 Hire Purchase (for the HP fees)
If anyone could help set me straight on this I would really appreciate it.
It is common practice with motor companies, that the deposit covers the VAT, so you claim it all at once.
Post a purchase invoice for the van...
£13350 to 0050, (T1) £2670 VAT £265 to 7300 (T0)
Pay off £4486 using the normal bank account (assuming you paid by cheque).
Using the same date, pay the remaining £11799 through one of the sage bank accounts that you don't use (building society account? credit card receipts? There's usually one)
Then, make a bank payment through this account to 7904 for the £348, and mark it as HP finance fee
Post a journal debiting that bank account with £11799 and credit HP 2310 Post a journal debiting that bank account with £348 and credit HP 2310 (I like to keep them separate so the accountant can easily tell what I am doing)
After that, when you post your monthly HP repayment, you post it to HP 2310.
Regarding HP interest - this is sometimes a journal which the accountant makes. I wont go into the intricacies of it, but basically their method involves working out more interest in the earlier years, when the outstanding loan is higher. BUT, if you really want to show some interest on the profit and loss, you can do a monthly journal (credit to 2310, debit 7904) for the £1062.12 divided over the number of months of the loan. SO if its a 36 month loan you would do a monthly journal of £29.50.
Of course, everyone has their own way, this is just mine. Hope it helps
Thanks so much Michelle, I will certainly give it a go your way and will probably leave the interest to the accountants year end journal! Really appreciate your help. thanks again Janice
Thank you Eunice for your help with this, I am now going to have a good look and another go at posting the journal, I've backup so can always restore!! Really appreciate your help on this thanks again.
The only thing to remember when posting HP interest along with the initial journals, is that isn't actually prepaid. The interest charge arises each month, as the policy goes on.
To give you a simple scenario - Let's say you take out the loan the day before your year end, and you post the journal above crediting HP 2310 with £13209.12. However, on that day, you actually only owe £11799, not £13209.12. This is because the interest charge, whilst being set in the agreement, hasn't actually arisen yet. It arises month by month.
The reason I mention it, is because you might find that the accountant comes along with their year end journals, and reverses out that prepayment in full, debiting it back to HP 2310, to bring the £13209.12 back down to £11799 - which would be the correct balance on the last day of the financial year, and what would appear in the financial statements.
If then, in the new financial year, you have been posting your monthly adjustment out of that prepayment account and into the profit and loss interest account, this accountants reversal suddenly leaves you with a minus balance on that prepayments account. Cue "confusion" by bookkeeper!
It depends on your accountant. I would actually pre-empt my journal confusing the client, and so would do some jiggery-pokery, so that the prepayment remained on sage for the client to continue to reduce - even though it was corrected for the financial statements.
Whatever happens, its all fixable at the next year end anyway, but hopefully this explanation helps some :)
