[hopeful_cpa]

These deferred profit questions in FAR are kicking my @ss like there is no tomorrow!!!! ARRRRRRRRRGHHHHHHHHHH!!!!!!

BEC: Done
REG: Done
AUD: Done
FAR: Done

I'M DONE!!!!!! AAAAAAAAAAAAAAAAAAAAAAHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Anonymous]

Which section is this?

[Anonymous]

Are you referring to Deferred Gross Profit?

[hopeful_cpa]

Yes, I'm referring to gross deferred profit.

BEC: Done
REG: Done
AUD: Done
FAR: Done

I'M DONE!!!!!! AAAAAAAAAAAAAAAAAAAAAAHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

[Anonymous]

you'll be straight homie

[Anonymous]

Do you refer to the deferred profit in case of installment sales? If so then my understanding is as follows:

The concept is that in case of installment sales you must recognize profit to the extent of cash received. Lets say if your gross profit margin is 25% then you just need to apply this percentage to the cash collected and balance profit is to be deferred for future periods.

Example:

Sales: $300,000 ,out of which $ 200,000 was cash sales.

COGS : $225,000

From the facts given above you can figure out that your Gross profit is $75,000 (300,000-225,000) which is 25% of your sales.

Hence, you must recognize profit of $50,000 (25% X 200,000) and the balance of $25,000 must be your deferred profit.

Hope my understanding is correct. Please someone correct me if I got it wrong.

[ItPaysTheBills]

As I understand it, you are correct Ali.

I just look at this as intuitive to installment sales if you consider the revenue recognition principle that revenues should be recognized when earned and realized or realizable. Ali gives a good example.

Remember, though, that if you are using the cost recovery method, that you defer the gross profit until collections exceed COGS.

[Anonymous]

It pays, thnx for confirming. I agree with you for the cost recovery method as well.

[CPA Dex]

And if you don't want to spend the time calculating profit first and then plugging the deferred amount, you can calculate the deferred amount first by multiplying the GP% by accounts receivable. So in Ali's example, the cash received is 200 out of 300. So AR is 100. 25%GP x 100 = 25 deferred profit.

[Anonymous]

That's very true 🙂

[Author]

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