[cpagal]

Can someone please explain something about installment sales to me:

A TV costing $600 is the only item sold on the installment basis in Year 1. The TV was sold for a price of $1,000 on November 1, X1. Thus, the gross profit percentage is 40% [($1,000-$600) divided by $1,000]. A down payment of $100 was received, and the remainder is due in nine monthly payments of $100 each. Because all payments are due within 1 year, no interest is charged. The entry for the sale is

Dr. Cash

---

$100

Dr. Installment receivables

---

$900

Dr Cost of installment sales

---

$600

Cr

---

Inventory

---

$600

Cr

---

Installment sales

---

$1000

December 1:

Dr Cash

---

$100

Cr

---

Installment receivable

---

$100

December 31:

Dr Installment sales

---

$1000

Cr

---

Cost of installment sales

---

$600

Cr

---

Deferred gross profit

---

$400

and on 12/31

Dr Deferred gross profit (year x1)—-$80

Cr

---

Realized gross profit

---

$80

My questions are these. (1) Do you have to debit cost of installment sales and credit installment sales in the original entry? Can you put it straight to Deferred gross profit on Nov 1, instead of reversing those entries and recorded deferred gross profit on 12/31? The entry would look like this

Dr Cash

---

$100

Dr Installment receivable

---

$900

Cr

---

Inventory

---

$600

Cr

---

Deferred gross profit

---

$400

Question (2). Where do you put the account “Realized Gross Profit”?? Don’t you need to put revenue and COGS? Where would the account realized gross profit go in the income statement since revenue minus COGS equals gross profit? The same thing applies to percentage-of-completion on a construction project. The entries they show have you crediting directly to Construction gross profit and never to Revenue and Cost of services (or equivalent to COGS).

12 days till my test and stuff like this is all I can think about…. My job doesn’t use these methods, so I have no first hand experience with them.

FAR - 08/30/15 - 90
AUD - 11/12/15 - 92
REG - 01/19/16 - 82
BEC - 02/29/16 - 83

Passed all on 1st attempt using GLEIM (full program) and NINJA (MCQ only)!!!

Louisiana Licensed CPA

[cpagal]

Does anyone know?

FAR - 08/30/15 - 90
AUD - 11/12/15 - 92
REG - 01/19/16 - 82
BEC - 02/29/16 - 83

Passed all on 1st attempt using GLEIM (full program) and NINJA (MCQ only)!!!

Louisiana Licensed CPA

[Author]

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