- Contrasted to “Deposit Method” which sets up unearned revenues.
- APB decided not GAAP unless conditions of uncertainty are extreme.
- It was decided in all but extreme cases recognition of bad debt expense and/or the setting up of an allowance account would be the preferred alternative.
- FASB prescribes application of the installment method of accounting for sales of real estate under certain circumstances.
Steps to apply the installment method:
- Record sales and cost of goods sold (CGS) in the “normal” way.
- At the end of the period apply the GP% to cash collections from current sales. This will equal realized gross profit.
- Current gross profit that is not realized must be deferred.