#1 Hire Purchase System - Concept - Financial Accounting -By Yasir Ali Sir

Hire purchase system refers to the system wherein, the seller of goods delivers the goods to the buyer without transferring the ownership of goods. The payment for the goods will be made by the buyer in instalments.
Hire-puchase system is a special system of purchase and sale of goods. Under this system purchaser pays the price of the goods in instalments. The instalments may be annual, six monthly, quarterly, monthly fortnightly etc. Under this system the goods are delivered to the purchaser at the time of agreement before the payment of instalments but the title on the goods is transferred after the payment of all instalments as per the hire-purchase agreement. The special feature of a hire-purchase transaction is that the payment of every instalment is treated as the payment of hire charges by the purchaser to the hire vendor till the payment of the last instalment.. After the payment of the last instalment, the amount of various instalments paid is appropriated towards the payment of the price of the goods sold and the ownership or the goods is transferred to the purchaser. Thus hire-purchase means a transaction where the goods are sold by vendor to the purchaser under the following conditions :

the goods will be delivered to the purchaser at the time of agreement.
the purchaser has a right to use the goods delivered.
the price of the goods will be paid in instalments.
every instalment will be treated to be the hire charges of the goods which is being used by the purchaser.
if all instalments are paid as per the terms of agreement , the title of the goods is transferred by vendor to the purchaser.
if there is a default in the payment of any of the instalments, the vendor will take away the goods from the possession of the purchaser without refunding him any amount received earlier in the form of various instalments.

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