Installment purchase - how to properly account for it?


Entrepreneurs can take advantage of the installment purchase offers. Such an offer attracts many people, especially when stores offer 0% installments. However, how to properly book an installment purchase? We explain below.

An invoice documenting the purchase in installments

In a situation where the entrepreneur makes a purchase in installments, despite the fact that he has not paid the entire amount, he receives an invoice. This document shows the total amount of the purchased goods. On the other hand, the "paid" item shows the actually paid amount - usually the value of the installment paid. Subsequent installments are set out in the repayment schedule, which is attached to the sales contract.

In some situations, information about the next installment to be paid is attached to invoices issued by the same seller in connection with another service provided by him, e.g. a telecommunications service. However, it should be borne in mind that the installment will not be one of the items on the invoice in this case, but will only be information about the amount to be paid. In some situations, the installment amount may be added to the total invoice amount, summing up the total amount to be paid. However, you should not post subsequent installments, despite the fact that they are on the invoice, because it would contribute to the duplication of the cost.

How to book an installment purchase?

The invoice documenting the purchase in installments, which covers the entire value of the order, should be booked in accordance with the date of its issue. When booking, the entire value of the invoice should be taken into account, even though the payment has been divided into installments. In a situation where the purchased goods constitute a fixed asset in the company, depreciation write-offs will be a tax cost for the entrepreneur. However, VAT will be deductible according to the date of receipt of the invoice.

Example 1.

The entrepreneur, by extending the contract with the mobile network operator, got an offer to buy a phone in installments. The value of the telephone was PLN 2,400, and the installments were interest-bearing 0%. The entrepreneur purchased the phone on January 12, 2021 and received an invoice issued on the same day. The taxpayer is required to pay for the telephone in 12 monthly installments - in accordance with the schedule attached to the contract.

The purchase was booked by the entrepreneur in the KPiR in the amount resulting from the invoice, i.e. PLN 2,400, according to the issue date, i.e. January 12, 2021, in column 13 as other expenses. Each paid installment will be settled by the entrepreneur in accordance with the date of its payment. Therefore, every month, after the payment is made, the entrepreneur will settle the amount of PLN 200 for the installment paid for the telephone purchased in installments.

Interest on purchases made in installments

Even though many stores nowadays offer 0% interest, this is not the norm. In many cases, interest is added to the installments, which is a tax cost. However, it is possible to include them in the costs only after they have been paid.

Only the interest paid can be classified as tax deductible costs.

The interest paid on the purchase made in installments is recognized by the entrepreneur in the KPiR in column 13 as other expenses. Usually, interest is booked using an internal voucher with which the entrepreneur attaches a proof of payment. Start a free 30-day trial period with no strings attached!

Installment purchase in the system

Users of the system should book an installment purchase documented by an invoice in the EXPENDITURE »ACCOUNTING» ADD »VAT INVOICE tab where the type of expenditure should be: OTHER EXPENDITURE RELATED TO BUSINESS ACTIVITY. Then, after entering the data in the PAYMENT DATE field, indicate the date of payment of the last installment in accordance with the repayment schedule.

More details on the posting of an invoice in the installment system are explained in the article: How to post a purchase in installments with interest?