INSTALLMENT METHOD

recognizes income in the periods of collection rather than in the period of sale
used when there is no reasonable basis for estimating the degree of collectibility. Revenue should not be recognized until cash is coll

A. B.
Installment Sales Installment Receivable, beg x GP rate = Deferred Gross Profit, beg
less: Cost of goods sold
Deferred Gross Profit Installment Receivable, end x GP rate = Deferred Gross Profit, end
multiply: GP rate
REALIZED GROSS PROFIT

T-ACCOUNTS

INSTALLMENT RECEIVABLE, 20XX DEFERRED GROSS PROFIT, 20XX INVENTORY

beginning balance beginning balance beginning balance
installment sales realized gross profit purchases
unpaid balance additional DGP (current) repossessed
write-off (direct (CMV after Recon
method) ending balance
collections cost)
ending balance ending balance

TRADE-IN ALLOWANCE
A. C.
Sales Resale price after recon cost of trade-in merchandise
less: overallowance or * less: Reconditioning cos(RSPARC * recon cost rate)
add: underallowance less: Normal Profit (RSPARC * normal profit rate)
Sales after allowance Market Value before recon cost of trade-in merchandise
less: Cost of Goods Sold
Deferred Gross Profit
B. D.
Trade-in allowance Down Payment
less: Market Value before recon cost of trade-in merchandise Market Value before recon cost of trade-in merchandise
over/underallowance * Balance ( Sales before allowance - Down Payment - Trade-in Allow
COLLECTIONS
x GP rate
 REALIZED GROSS PROFIT

REPOSSESSED MERCHANDISE

Resale price after recon cost of repossessed merchandise Market Value before recon cost of repossessed merchandis
less: Reconditioning cost (RSPARC * recon cost rate) less: Unrecovered Cost
less: Normal Profit (RSPARC * normal profit rate) gain/loss on repossession
Market Value before recon cost

End, Installment Receivable (unpaid balance)

less: DGP of Installment Receivable
Unrecovered Cost

COST RECOVERY METHOD

it defers recognition of any profit until the company has recovered the cost of the entire sale.
once it has recovered the cost, it records gross profit at an amout equal to the cash it receives in the period.
used when there is no reasonable basis for estimating the degree of collectibility.

A. C.
Installment Sales Deferred Gross Profit
less: Cost of Installment Sales less: Negative Amount
Deferred Gross Profit Realized Gross Profit

B.
Cost of Installment Sales
less: Collections for the year
Positive amount (Not enough collections to cover cost of installment sales)
or Negative amount (Enough collections to cover cost of installment sales)
nized until cash is collected.

d Gross Profit, beg

d Gross Profit, end

INVENTORY

CGS - Regular sales

CGS - Installment sales

erchandise

erchandise
yment - Trade-in Allowance)
possessed merchandise