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Accounting For
Installment Sales:
Teacher : Sir Irfan
Date : 31/March/2015
Presented By :
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.
TYPES OF PROPERTY
PERSONAL PROPERTY
REAL PROPERTY
For example
If you purchase car for
For example
If you purchase car for
PERIOD OF INSTALLMENT
AGREEMENT
*FOR PERSONAL
PROPERTY
UP TO
*FOR REAL
PROPERTY
UP TO
YEARS YEARS
Lien Or Mortgage
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
Sale.
2)Gross Profit Related To The Periods In
method
Sell merchandise for
Rs.600 having cost
Rs.500 in 20xx
Sales.60
0
Less:
Cost of good sold.(500)
GROSS PROFIT.100
X . Y . Z co
General Journal
DATE
DESCRIPTION
Account receivable
PR
DEBIT
600
sales
600
500
500
Merchandise inventory
sales
CREDIT
600
500
Income summary
100
Income summary
capital
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. )
10
%:
=Un realize G.P
x
100
Installment sales
= 100
x 100
600
= 16.6666%
11
X.Y.Z Co
General JOURNAL
DATE
DESCRIPTION
Installment A/R
PR
DEBIT
600
Installment sales
600
500
500
Merchandise Inventory
Installment sales
cost of installment sales
CREDIT
600
500
100
12
X . Y . Z Co
General Journal
DATE
DESCRIPTION
Cash
P
.
R
Dr.
Cr.
100
Installment A/R
100
Un realize G.P
account receivable..
Realize G.P
Rs.100
Realize G.P= collection
x G.P
% ACADEMY
AL-MUNAWAR
COMMERCE
17
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IN CASE OF REPOSSESSION OF
MERCHANDISE
If the customer default by remaining Installment
14
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
CREDIT
500
15
Interest On Installment
Basis:
There are two methods of
1- ON ACCRUAL BASIS
2- ON CASH BASIS
AL-MUNAWAR COMMERCE ACADEMY
16
1-ON ACCRUAL
BASIS
D
A
T
E
DESCRIPTION
xx Interest receivable
P Dr.
.
R
Interest receivable
xxx
Interest revenue
XX cash
ENTRIES
D DESCRIPTION
A
T
E
XX
CASH
Dr.
Cr.
xx
xxx
Interest revenue
xx
xxx
xxx
17
THANK YOU
Prepared by:
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