Question

Difference between hire purchase and sales in financial accounting

Answer 1

Answer:

Although hire purchase system could ultimately result in sale of goods, the sale in normal sense and sale under hire purchase system are not the same.

Explanation:

1. Act: A sale is governed by the sale of goods act,1930

          A hire purchase is governed by the Hire purchase act,1972.

2. ownership: In case of sale ownership of goods is transferred to the buyer immediately.

In case of Hire purchase, the ownership of goods is transferred to buyer on payment of all installments.

3. In case of sale buyer makes payment in lump-sum.

In case of hire purchase, payment made in installments.

4. The buyer pays only for the price of goods in sale.

The hire purchaser pays for the price of goods and also some amount of interest.

5. Once the sale has taken place, neither the seller, nor the buyer can terminate the contract.

In case of Hire purchase, Either the buyer or seller can terminate the contract at any point of time, until the payment of last installment.