Installment sales
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Installment sale is a type of sale in which the seller receives a part of the price of the goods or assets transferred in advance in cash and the rest of the price in equal or unequal installments at different times in order to facilitate the buyer.
The issue that is raised from the point of view of accounting is the principle of matching income and expenses.
Installment sales accounting method
In this method, by collecting the installments, the interest of each installment is recognized.
The amount received for each installment is divided into two parts.
1- Part as cost recovery
2- The remaining part as realized gross profit
Newspaper registrations installment method
1- Upon receipt of pre-payment and receivable documents for the remaining installments
Box *
Documents receivable in installments *
Property/Sales of Kalala *
Unrealized profit of installment sale *
2- By receiving each installment from customers plus interest income
Fund/Bank *
Documents receivable in installments *
Interest income *
3- Calculating and determining the realized profit
Unrealized profit of installment sales*
Realized profit of installment sale *
4- Closing the realized profit of installment sales and interest income to the profit and loss account:
Interest income *
Realized profit of installment sale *
profit and loss *
If the permanent control method is used in relation to inventories:
By selling goods:
(1) Fund / Bank *
Installment Accounts Receivable *
Installment sales *
(2) Installment sale price *
Inventory *
Closing the sales account and the total price in installments and determination
Gross profit:
(3) Installment sales *
Installment cost *
Gross unrealized profit *
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Example: Installment method
At the beginning of the year, Mohammad Company x1 truck unit with a total price of 2,800,000 Rials in the amount of 4,000,000 Rials in the form of installment sales, receiving 1,000,000 Rials in excess and the rest in 6 annual installments of 500,000 Rials to Mr. Tahmasabi. The interest rate for the remaining installments is 10 be in good health The records of the relevant newspaper in the office of Ebtekar are as follows.
X1/1/
Fund 1,000,000
Documents receivable installments 3,000,000
Truck 2,800,000
Unrealized profit 1,200,000
X1/12/29
Fund/bank 800,000
Documents receivable installments 500,000
300,000 interest income
X1/12/29
Unrealized profit 450,000
Realized profit 450,000
Closing the realized profit and interest income to the profit and loss account:
300,000 interest income
Realized profit 450,000
Profit and loss 750,000
450,000=30% (1,000,000+500,000) realized profit
300,000=10%*3,000,000 interest income
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