There are two methods of recording transactions under Installment System. These are:
i. With Opening Interest Suspense Account
ii. Without Opening Interest Suspense Account
Journal entries under these two methods are as under:
Journal entries in the books of purchaser
1. For purchasing goods under installment system:
First Method
Assets A/C(total cash value)..............Dr.
Interest suspense A/C(total interest).........Dr.
To vendor A/C
Second Method
Assets A/C (total cash value)............Dr.
To vendor A/c
2. For payment of cash down value (both method)
Vendor A/C..................Dr.
To Bank A/C
3. For interest due
First Method
Interest A/C..............Dr.
To Interest suspense A/C
Second method
Interest A/C...............Dr.
To vendor A/C
4. For payment of installment (both methods)
Vendor A/c.............Dr.
To bank A/C
5. For depreciation charges (both methods)
Depreciation A/C.............Dr.
To Asset A/C
6. For transferring interest and depreciation
First method
Profit and loss A/C ..................Dr.
To interest A/C
To depreciation A/C
Second method
Profit and loss A/C................Dr.
To interest A/C
Journal Entries In The Books Of Vendor
1. For selling goods on installment system
First method
Buyer A/C..................Dr.
To sales A/C(total cash value)
To interest suspense A/C
Second method
Buyer A/C...........Dr.
To Sales A/C
2. For receiving cash down value (both methods)
Bank A/C..........Dr.
To Buyer A/C
3. For interest due
First method
Interest suspense A/C...........Dr.
To interest A/C
Second method
Buyer A/C.................Dr.
To Interest A/C
4. For receiving installment (both methods)
Bank A/C...................Dr.
To Buyer A/C
5. For transferring interest (both methods)
Interest A/C............Dr.
To profit and loss A/C
6. For transferring sales to trading account (both methods)
Sales A/C ...............Dr.
To trading A/C
