Presentation On:

Accounting For
Installment Sales:
Teacher : Sir Irfan
Date : 31/March/2015
Presented By :

Syeda Nida & Ramsha Sidiqui

AL-MUNAWAR COMMERCE ACADEMY

ACCOUNTING FOR
INSTALLMENT SALES :
Introduction :
It is a postponed payment
executed in a fixed number of installment at a
determinant time with a price higher than
cash price.

AL-MUNAWAR COMMERCE ACADEMY

TYPES OF PROPERTY
PERSONAL PROPERTY

REAL PROPERTY

*For personal use

*For business use

For example
If you purchase car for

personal use , it is your

personal property.

For example
If you purchase car for

sale , it is your real

property.
AL-MUNAWAR COMMERCE ACADEMY

PERIOD OF INSTALLMENT
AGREEMENT
*FOR PERSONAL
PROPERTY

UP TO

*FOR REAL
PROPERTY

UP TO

YEARS YEARS

AL-MUNAWAR COMMERCE ACADEMY

PROTECTION FOR THE

SELLER
1) Transfer Of Title To Trustee

)2) Transfer Of Title With Property Subject To

Lien Or Mortgage

)3) Conditional Sales Contract

)4) Lease Purchase Arrangement

AL-MUNAWAR COMMERCE ACADEMY

METHOD TO REDUCE
REPOSSESSION LOSSES
1)Down Payment Should Be Large Enough .
2)Installment Period Shouldnt Be Too Long .
3)Installment Payment Should Exceed The

Decline In The Value Of The Article That

Takes Place B/W Payments .

AL-MUNAWAR COMMERCE ACADEMY

METHOD OF GROSS PROFIT

RECOGNITION ON SALE
Two general approaches may be

taken to the recognition of gross

profit on sales:
1)Gross Profit Recognition In The Period Of

Sale.
2)Gross Profit Related To The Periods In

Which Cash Is Collected.

AL-MUNAWAR COMMERCE ACADEMY

1-GROSS PROFIT RECOGNIZE

IN THE PERIOD OF SALE
Using perpetual

method
Sell merchandise for
Rs.600 having cost
Rs.500 in 20xx
Sales.60
0
Less:
Cost of good sold.(500)
GROSS PROFIT.100

Sales & cost of

good sold close

at the end of year
to realize the
whole profit in
the period of sale
(20xx) .

AL-MUNAWAR COMMERCE ACADEMY

X . Y . Z co
General Journal
DATE

DESCRIPTION

Account receivable

PR

DEBIT
600

sales

Cost of good sold

600

500
500

Merchandise inventory

sales

CREDIT

600

cost of good sold

500

Income summary

100

Income summary
capital

AL-MUNAWAR COMMERCE ACADEMY

100
100

2- GROSS PROFIT
RECOGNIZE THE PERIOD IN
WHICH CASH IS COLLECTED
1)Collection Regarded As First The Recovery Of Cost.
2)Collection Regarded As First The Realization Of Profit.
3)Collection Regarded As Both Return Of Cost And
Realization Of Profit.
METHOD (3) above, providing for the recognition of G.P ,is referred to as accounting by the installment method or installment basis. )

AL-MUNAWAR COMMERCE ACADEMY

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THE INSTALLMENT METHOD

Using perpetual method
Sell merchandise of Rs.600 of

cost Rs.500 on installment

basis in 20xx.
Installment sales....600
LESS:
Cost of installment sales....(500)
UNREALIZE
GROSS PROFIT .
100

GROSS PROFIT RATE

%:
=Un realize G.P
x
100
Installment sales
= 100
x 100
600
= 16.6666%

AL-MUNAWAR COMMERCE ACADEMY

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X.Y.Z Co
General JOURNAL
DATE

DESCRIPTION

Installment A/R

PR

DEBIT
600

Installment sales

Cost of installment sales

600

500
500

Merchandise Inventory

Installment sales
cost of installment sales

Un realize Gross profit

AL-MUNAWAR COMMERCE ACADEMY

CREDIT

600
500
100
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REALIZATION OF GROSS PROFIT

WITH COLLECTION OF CASH
*Installment account
receivable collected
Rs.100

X . Y . Z Co
General Journal
DATE

DESCRIPTION

Cash

P
.
R

Dr.

Cr.

100

Installment A/R

100

REALIZE GROSS PROFIT :

Collection of installment

Un realize G.P

account receivable..
Realize G.P
Rs.100
Realize G.P= collection
x G.P
% ACADEMY
AL-MUNAWAR
COMMERCE

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IN CASE OF REPOSSESSION OF
MERCHANDISE
If the customer default by remaining Installment

A/R Rs.500 & fair market value of merchandise

reposed is Rs.300
CALCULATION :
Value assigned (market value). .. Rs.300
LESS: Cost of merchandise repossess :Installment A/R cancelled .. 500
Un realize G.P 500 x 16.666% .. (83) .
(417)
LOSS ON REPOSSESSION
......................................117
AL-MUNAWAR COMMERCE ACADEMY

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X . Y . Z Co
General Journal
ENTRY OF REPOSSESSION .
Date

DESCRIPTION

P.R

DEBIT

Merchandise repossessed

300

Un realize G.P

83

Loss on repossession

117

Installment A/R

AL-MUNAWAR COMMERCE ACADEMY

CREDIT

500

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Interest On Installment
Basis:
There are two methods of

recording of interest on unpaid

balance of installment account
receivable :

1- ON ACCRUAL BASIS
2- ON CASH BASIS
AL-MUNAWAR COMMERCE ACADEMY

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1-ON ACCRUAL
BASIS
D
A
T
E

DESCRIPTION

xx Interest receivable

P Dr.
.
R

Interest receivable

2-ON CASH BASIS

Cr.

xxx

Interest revenue
XX cash

ENTRIES
D DESCRIPTION
A
T
E
XX

CASH

Dr.

Cr.

xx

xxx
Interest revenue

xx

xxx
xxx

AL-MUNAWAR COMMERCE ACADEMY

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THANK YOU

Prepared by:

Ramsha & Nida

AL-MUNAWAR COMMERCE ACADEMY

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