INSTALMENT PAYMENT SYSTEM

An instalment payment system is a credit sale system in which payments are made in instalments over a period of time. In this system, the buyer gets the possession of the goods as well as the ownership of the goods right at the time of signing the agreement.

During the course of paying the instalment, the vendor cannot responses to the goods. In that case, the vendor can sue the buyer only for the recovery of dues.

FEATURES OF INSTALMENT PAYMENT SYSTEM

1. Instalment purchase system is just like an outright credit sale of goods.
2. The buyer makes the payment in different instalment over a periods of time as agrees upon in the agreement.
3. Under instalment system, the buyer gets the immediate possession as well as the ownership of the goods.
4. The seller cannot claim the good back if the buyer made default in the payment of instalment.
5. In case of default in the payment of instalment, the total amount of instalments already paid by the buyer cannot be forfeited.
6. Under this system, the buyer can sell or mortgage the goods as the ownership is with the buyer.
7. Risk of the goods/ assets are to borne by the buyer just after signing the agreement.
8. The buyer of the goods under this system has no right to return the goods to the seller.

ACCOUNTING TREATMENT

The accounting treatment in the books of the buyer and seller is as follows:

IN THE BOOKS OF THE BUYER

There are two methods of recording transactions:

WITHOUT OPENING INTEREST SUSPENSE ACCOUNT

BY OPENING INTEREST SUSPENSE ACCOUNT

IN THE BOOKS OF THE VENDOR

Here again entries are recorded by two methods:

WITHOUT OPENING INTEREST SUSPENSE ACCOUNT

For selling goods: Buyer A/c    Dr.      To Sales A/c

For receipt of down payment: Cash/ Bank A/c Dr.       To Buyer A/c

For instalment received: Cash/ Bank A/c Dr.       To Buyer A/c

For transfer of sales to trading account Sales A/c    Dr.       To Trading A/c

For transfer of interest to Profit and Loss Account Interest A/c Dr.       To Profit and Loss A/c

WITH OPENING INTEREST SUSPENSE ACCOUNT

ADVANTAGES OF INSTALMENT PAYMENT SYSTEM

• This system enables the buyers to buy the goods which are beyond their reach.
• It widens the market
• Middlemen are eliminated
• As convenience and luxury goods are sold, the standard of living increases.
• Sellers can increases their sales by adopting this method.

DISADVANTAGES

• This system tempt the buyers to buy the goods beyond their reach. So this is extravagant.
• The buyer pays higher price for the article as interest charge is usually more.
• There are many legal formalities which are quiet cumbersome.

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Accounting	Non profit organisation	Depreciation	Liquidity ratios
Nature of Accounting	Receipts and Payments Account	Depreciation Accounting	Acid Test Ratio
Benefits of Accounting	Scope of accounting	Hire Purchase Accounting	Cash Ratio
Difference between cost accounting and financial accounting	Financial accounting, cost accounting and management accounting	Difference between hire purchase and instalment system	Financial ratio analysis
Difference between transaction and event	Transactions	Users of Accounting	Ratio analysis
Limitation of Accounting	Capital Expenditure	Instalment System	Difference between consignment and sale
Book Keeping	Revenue Expenditure	Reserves Accounting	Abnormal loss vs normal loss in consignment
Accountancy	Difference between capital and revenue expenditure	Provisions	Treatment of loss on consignment
Accounting as science or an art	Accounting Equation	Single entry system	Accounting treatment of consignment
Book Keeping vs accounting	Deferred Revenue Expenditure	Difference between statement of affairs and balance sheet	Joint venture vs consignment
Book keeping vs accountancy	Capital receipt	IFRS	Departmental Accounting
Accounting vs accountancy	Revenue receipt	Balance Sheet	Methods of departmental accounting
Basis of Accounting	Difference between capital and revenue receipt	Profit and loss Account	Allocation of expenses in departmental accounting
Branches of accounting	Difference between accounting concepts and conventions	Trading Account	Inter-departmental transfers
Cash and mercantile system of accounting	Accounting Standards	Voyage Account	Different types of branches
Accounting Principles	Objectives of Accounting	Accounting for Incomplete Voyage	Departmental vs Branch accounting
Golden ru les of accounting	Process of Accounting	Joint venture	Methods of branch accounting
Double entry system of book keeping	Scope of Accounting	Joint Venture Vs Partnership	Incorporation of branch trial balance
Double entry vs Single entry system	Accounting Concepts vs Accounting conventions	Methods of recording transactions in Joint Venture	Garner VS Murray Rule
History of Accounting	Difference between provisions and reserves	Consignment