FAR 2 - Accounting for Installment Sales

Question 1

How to find Gross Profit in accounting for installment sales?

Answer 1

Gross Profit = Sale - Cost of Goods Sold

Question 2

How do you find Gross Profit Percentage in accounting for installment sales?

Answer 2

Gross Profit Percentage = Gross Profit / Sales Price

Question 3

How do you find Earned Gross Profit in accounting for installment sales?

Answer 3

Earned Gross Profit = Cash collections x Gross Profit Percentage

Cash Collections = Sales - Ending installment accounts receivable

Question 4

How do you find Deferred Gross Profit in accounting for installment sales?

Answer 4

Deferred Gross Profit = Ending installment accounts receivable x Gross Profit Percentage

Question 5

What type of construction accounting is Accrual and which one uses the Cash method?

Answer 5

Cash method = Accounting for installment sales

Accrual method = Percentage of completion

Question 6

What type of account is deferred gross profit?

Answer 6

Contra asset for accounts recievable

Question 7

Journal entry to record installment sale?

Answer 7

Dr: Installment sale accounts recieveable
Cr: Inventory
Cr: Deferred gross profit

Question 8

Journal entry to record cash collection in installment sale?

Answer 8

Dr: Cash
Cr: Installment sale accounts receivable

Question 9

Journal entry to record profit on collection in installment sale?

Answer 9

Dr: Deferred gross profit
Cr: Realized gross profit on installment sales

Question 10

When is profit recognized on a sale in cost recovery method?

Answer 10

At the time of sale, expected gross profit is recorded as deferred gross profit.

Cash collections are first applied to the recovery of product costs.

Collections after ALL costs have been recovered are then recorded as profit.

Question 11

Journal entry to record sale in cost recovery method?

Answer 11

Dr: Cost recovery receivable
Cr: Inventory
Cr: Deferred gross profit

Question 12

Journal entry to record year 1 collection in cost recovery method?

Answer 12

Dr: Cash
Cr: Cost recovery receivable

All money is treated as recovery to the cost (inventory)

Question 13

Journal entry to record year 2 collection in cost recovery method?

Answer 13

Dr: Cash
Cr: Cost recovery recoverable

Dr: Deferred gross profit
Cr: Realized gross profit on cost recovery sales

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