installment sales

Question 1

installment method

Answer 1

interest revenue is added to cash collected x gross profit % to get the total income for year

Question 2

installment sales method

Answer 2

revenue is recognized as cash is collected.
it is only used when collection of the sale price is not reasonable assured
gross profit is deferred to future periods and recognized proportionately to collection of the receivables

Question 3

journal entries in installment sales

Answer 3

installment a/r     (debit)
installment sales             (credit)

cost of goods sold installment (debit)
inventory/purchases (credit)

installment sales             (debit)
cost of goods sold installment                   (credit)
deferred gross profit installment                (credit)

cash received         (debit)
installment a/r                         (credit)

deferred gross profit installment (debit)
realized gross profit installment (credit)