Accounting for Installment Sales

Question 1

Formula Gross profit

Answer 1

Sales - Cost of goods sold

Question 2

Formula Gross profit percentage

Answer 2

Gross profit/sales price

Question 3

Formula Earned gross profit

Answer 3

Cash collections x gross profit percentage

Question 4

Formula Deferred gross profit

Answer 4

Installment receivable x gross profit percentage

Question 5

What is the balance sheet presentation for installment sale?

Answer 5

AR - Deferred gross proift = Balance

Question 6

JE to record installment sale

Answer 6

Dr. Installment AR, Cr. Inventory, Cr. Deferred gross profit

Question 7

JE to recognize cash collection

Answer 7

Dr. Cash, Cr. Installment AR

Question 8

JE to record profit on collection

Answer 8

Dr. Deferred gross profit, Cr. Realized gain on installment sales

Question 9

In the cost recovery method, the expected profit on the sale is recorded as?

Answer 9

Deferred gross profit

Question 10

Where is cash first applied in the cost recovery method?

Answer 10

Recovery of product costs

Question 11

Collections after all costs have been recovered in the cost recovery method is recognized as?

Answer 11

Profit