Introduction
The Stock and Debtors System is an accounting method used for maintaining records under the hire purchase business. In this system, the business records transactions by maintaining various accounts to reflect goods sold on hire purchase, installments received, and assets in possession of customers.
This method gives detailed control over the movement of goods and outstanding balances. To begin with, various accounts are opened, and journal entries are passed accordingly.
Accounts Maintained under Stock and Debtors System
The following accounts are usually maintained:
- Hire Purchase Stock Account
- Hire Purchase Debtors Account
- Goods Sold on Hire Purchase Account
- Hire Purchase Adjustment Account
- Stock Reserve Account
Journal Entries to Open Various Accounts
Here are the important journal entries passed under the Stock and Debtors System:
1. When Goods are Sold on Hire Purchase
Hire Purchase Stock A/c Dr. To Goods Sold on Hire Purchase A/c
Explanation: This entry is made for the total hire purchase price (including profit) of goods sold.
2. When Installments Become Due
Hire Purchase Debtors A/c Dr. To Hire Purchase Stock A/c
Explanation: This entry shows the amount that is due from customers.
3. When Cash is Received from Hire Purchase Debtors
Cash/Bank A/c Dr. To Hire Purchase Debtors A/c
Explanation: This entry is made when the customer pays the installment.
4. When Goods are Repossessed from Defaulter
Goods Repossessed A/c Dr. To Hire Purchase Debtors A/c
Explanation: If the buyer fails to pay, goods are taken back and this entry is made.
5. At the End of the Period, for Closing Balance of Installments not Due
Stock Reserve A/c Dr. To Hire Purchase Adjustment A/c
Explanation: This entry is made for unrealized profit in the closing stock.
6. For Profit on Hire Purchase Transactions
Hire Purchase Adjustment A/c Dr. To Profit and Loss A/c
Explanation: This entry transfers the realized profit to the Profit and Loss Account.
Example
Suppose goods costing ₹10,000 are sold on hire purchase at ₹15,000.
Entry for Sale:
Hire Purchase Stock A/c Dr. ₹15,000 To Goods Sold on Hire Purchase A/c ₹15,000
Entry for Installment Due:
Hire Purchase Debtors A/c Dr. ₹5,000 To Hire Purchase Stock A/c ₹5,000
Entry for Cash Received:
Cash A/c Dr. ₹5,000 To Hire Purchase Debtors A/c ₹5,000
Conclusion
The Stock and Debtors System provides a detailed and accurate method of accounting for hire purchase transactions. By using specific journal entries for each stage—sale, installment due, cash received, and repossession—it ensures proper tracking of goods and customer payments. It also helps in calculating and recording the profit earned in a systematic way.