Definition
-Installment sales contract is a special type of credit arrangement which provides for a series of payments over a period of months or years
-Usually used by dealers in real estate, home appliances and cars
-The seller must wait for a considerable period of time to collect the full amount
Accounting Procedures
The gross profit from an installment sale is initially deferred and subsequently realized on a piecemeal basis.
Formula for installment payments are received
Realized gross profit = Collection on sale x Gross profit sale
Repossession
If a customer defaults on an installment contract and no further collections can be made the seller may repossess the property sold to satisfy the remaining indebtedness
The following procedures to record repossession may be used
1.) Record the repossessed merchandise in an appropriate inventory account in its fair value
2.) Cancel the uncollected installment receivable balance
3.) Write-off the balance of the deferred gross profit
4.) Recognize gain or loss
Trade-ins
They use trade-in as part of down payment.
General Rule
The actual value or the fair market value of asset received as a train should be used in valuing the said item
Different Conditions
1.) Trade in value is equal to actual value.
2.) Trade-in is greater than net realizable value.
The amount of the over allowance may be recorded either as charge to Over allowance on Trade-In account or Reduction from Installment Sales Account
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