Installment Sales Flashcards
installment sales method
cash method, revenue recognized when cash received
used when no reasonable basis for estimating collectibility
gross profit %age
IS method
= gross profit / sales price
earned gross profit
IS method
= cash collections x gross profit %age
deferred gross profit
IS method
= installment receivable x gross profit %age
contra-asset, reduces AR
record sale, IS method
JE
DR, installment sale AR
CR, inventory
CR, deferred GP
record cash collection, IS method
JE
DR, cash
CR, installment sale AR
record profit on collection, IS method
JE
DR, deferred GP (out of B/S)
CR, realized GP on installment sales (into I/S)
cost recovery method
no profit recognized on sale until costs are recovered
expected profit is recorded as deferred GP
cash collections are first applied to recovery of product costs then as profit
Used when receivables are collected over extended period
No reasonable basis for collectibility
record sale, CR method
JE
DR, cost recovery receivable
CR, inventory
DR, deferred GP
record cash collection, CR method
JE
DR, cash
CR, cost recovery receivable
DR, deferred GP
CR, realized GP on cost recovery sales
(add to JE when costs have been recovered)
