Section 22 - Installment Sales and Cost Recovery Method Flashcards

1
Q

What are the 3 methods of recognizing revenue?

A

1) Accrual - GAAP
2) Installment Sales approach
3) Cost Recovery Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When is the Installment Sales approach permitted?

A

When there are substantial doubt that the receivable will be collectible – based on the conservatism principle

-Commonly used for tax purposes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Which revenue recognizing method is the MOST conservative?

A

Cost Recovery Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

How are revenues recognized under the Installment Sales Method?

A

Revenues are deferred and recognized each year proportionate to the cash collected during that year - Conservatism

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How do you calculate the revenue under the Installment Sales Method?

A

Gross Profit Recognized
Cash collected x Gross Profit % = Profit recognized (I/S)

Deferred Gross Profit
Receivable balance x Gross Profit % = Deferred Profit (B/S)

Gross profit = Sales - COGS
Gross profit % = Gross profit/ Sales price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the J/E for the Installment Sales Method?

A

Unrealized Gross Profit

Deferred Gross Profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Under the Cost Recovery Method, when is income/profit recognized?

A

Not until the amount is recovered - MOST CONSERVATIVE

All profit is recorded as “deferred gross profit”

JE
Unrealized Gross Profit
Deferred Gross Profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Under IFRS, if revenues are not likely to be collected, what revenue recognition method is used?

A

Cost Recovery Method

How well did you know this?
1
Not at all
2
3
4
5
Perfectly