How do yo record installment sales?

Answer 1

Follow the following steps:

1. Determine the cost of sales and the sale price and record accordingly by Debiting cost of sale and crediting inventory. Also, Debit Account receivable and credit Installment sales

2. Determine the gross profit percentage by subtracting the cost of sale form the sale price and then divide the sales price.

3. The answer derived from step b is called Deferred Gross Profit(If based on accrued accounting). Debit deferred gross profit(IS) and credit Deferred gross profit (BS).

4. when cash is received Debit Cash at Bank and Credit Account Receivable, do so until the Last payment is received.

5. Prepare closing entry for the year by debiting installment sales and credit cost of sales, Deferred gross profit(IF any) and Profit realized for the year

Note: If all profit are realized then there will be no future recoverable amount left. That is, Deferred gross profit