Installment sales

Question 1

Methods of recognizing revenue

Answer 1

Accrual installment, Cost recovery method

Question 2

Accrual method

Answer 2

Use when collection is reasonably assured
Degree of collectible is estimable
Profit is recognized and earned when reliazable
Normal GAAP

Question 3

Installment sales approach

Answer 3

Collection is not reasonably assured

Profit is recognized as collected

Question 4

Cost recovery method

Answer 4

We cannot estimated collectable methods
Collection is not reasonably assured
No profit recognized until entire cost is collected

Question 5

Gross profit recognized

Answer 5

Cash collected x Gross profit%=Profit recognized

Deferred GP=Receivable balancexGp=Deferred GP