Installment Sales Method

Knowledge Center

What is the Installment Sales Method? Meaning.

The Installment Sales Method is one of several Revenue Recognition approaches under U.S. GAAP, in which revenue is recognized subsequently to the sale, at the time of cash collection.

One instance in which revenue recognition might be delayed beyond the point of sale is when sales are made under very extended payment terms (e.g. installment sales of consumer durables and retail land sales of vacation or retirement property).

As a lengthy collection period significantly increases the risk of non-collection and in general does not provide a reasonable basis for estimating the proportion of installment accounts likely to prove uncollectible, neither of the two revenue recognition conditions under U.S. GAAP are satisfied and the recognition of revenue should be deferred.

The Installment Sales Method recognizes income based on the Gross Profit Percentage (gross profit/sales) and the amount of cash collected. For example, if a company collected 35% of the total sales amount, it can recognize 35% of the gross profit. The remaining 65% of gross profit are deferred until cash is collected.

Forum New Topic Forum about the Installment Sales Method. Start a new forum topic about the Installment Sales Method. More info. Share your opinion, knowledge and experience or ask a question (sign up for free first)

Information Sources Sign up Various sources of information regarding the Installment Sales Method. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

Research Links Sign up Automatically jump to further useful sources regarding the Installment Sales Method. News Videos Presentations Books More

Return to Management Hub: Finance & Investing

More on Management  |  Return to Management Dictionary

This ends our Installment Sales Method summary and forum.