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Flashcards in 9A video 1: installment sales Deck (9):
0

Installment sales 2 important equations

1) Deferred gross profit = ending receivables x GP%

2) Realize GP = cash collections x GP%

1

Installment sales: equation for deferred gross profit after collection

Deferred gross profit after collection =
Ending A/R x GP%

2

Installment sales: realized gross profit = cash collection x GP % and it also equals?

Realized GP =
Deferred GP before recognition - deferred GP after recognition

3

What is the journal entry to record $10,000 in installment sales in which $6,000 of inventory is shipped?

A/R. 10,000
Installment Sales. 10,000

Cost of Sales. 6,000
Inventory. 6,000

4

Assuming the following entries are recorded:
A/R. 10,000
Installment Sales. 10,000

Cost of Sales. 6,000
Inventory. 6,000

What are the entries to close out the accounts assuming the gross profit percentage is 40% and cash collected is $1,000?

Installment sales. 10,000
Cost of sales. 6,000
Realized GP (40%x1,000). 400
Deferred GP. 3,600

5

What is the journal entry in the installment sales process to collect $1,000 in cash?

Cash. 1,000
A/R. 1,000

6

Cash basis is in violation of...

GAAP

7

Installment sales:

Revenue is recognized at...

Point of Cash is collection

8

Installment sales method can only be used when...

Collection of sales price (receivables) is not reasonably assured