Journal Entries for Instalment System Purchase

In the given scenario, Mr. Raju purchased a machine on the instalment system. The following are the journal entries that will be recorded in the books of the purchaser and vendor.

1. Initial Down Payment:

Mr. Raju made an initial down payment of Rs. 20,000. The journal entry for this transaction will be as follows:

In the books of the Purchaser:

Cash A/c Dr. 20,000
To Vendor’s A/c 20,000

This entry will record the decrease in cash and increase in the vendor's account.

In the books of the Vendor:

Bank A/c Dr. 20,000
To Mr. Raju’s A/c 20,000

This entry will record the increase in the bank account and decrease in the customer's account.

2. First Instalment:

On 31st March, Mr. Raju paid the first instalment of Rs. 20,000. The journal entry for this transaction will be as follows:

In the books of the Purchaser:

Vendor’s A/c Dr. 20,000
To Bank A/c 20,000

This entry will record the decrease in the vendor's account and increase in the bank account.

In the books of the Vendor:

Bank A/c Dr. 20,000
To Mr. Raju’s A/c 20,000

This entry will record the increase in the bank account and decrease in the customer's account.

3. Second Instalment:

On 31st March of the next year, Mr. Raju paid the second instalment of Rs. 20,000. The journal entry for this transaction will be as follows:

In the books of the Purchaser:

Vendor’s A/c Dr. 20,000
To Bank A/c 20,000

This entry will record the decrease in the vendor's account and increase in the bank account.

In the books of the Vendor:

Bank A/c Dr. 20,000
To Mr. Raju’s A/c 20,000

This entry will record the increase in the bank account and decrease in the customer's account.

4. Third Instalment:

On 31st March of the following year, Mr. Raju paid the final instalment of Rs. 20,000. The journal entry for this transaction will be as follows:

In the books of the Purchaser:

Vendor’s A/c Dr. 20,000
To Bank A/c 20,000

This entry will record the decrease in the vendor's account and increase in the bank account.

In the books of the Vendor:

Bank A/c Dr. 20,000
To Mr. Raju’s A/c 20,000

This entry will record the increase in the bank account and decrease in the customer's account.

5. Interest Charged:

Interest is charged on the outstanding balance of the machine's cost. The interest charged will be recorded as an expense in the books of the purchaser and revenue in the books of the vendor.

In the books of the Purchaser:

Interest A/c Dr. (amount of interest)
To Vendor’s A/c (amount of interest)

This entry will record the increase in the interest account and decrease in the vendor's account.

In the books of the Vendor:

Mr. Raju’s A/c Dr. (amount of interest)
To Interest A/c (