Installment sales presentation
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Transcript of Installment sales presentation
1
Presentation On:Accounting For Installment Sales:
Presented By :
Syeda Nida & Ramsha Sidiqui
Teacher : Sir IrfanDate : 31/March/2015
AL-MUNAWAR COMMERCE ACADEMY
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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
AL-MUNAWAR COMMERCE ACADEMY 3
TYPES OF PROPERTYPERSONAL PROPERTY REAL PROPERTY*For personal use
For exampleIf you purchase car for
personal use , it is your personal property.
*For business use
For exampleIf you purchase car for
sale , it is your real property.
AL-MUNAWAR COMMERCE ACADEMY 4
PERIOD OF INSTALLMENT AGREEMENT
*FOR PERSONAL PROPERTY
*FOR REAL PROPERTY
UP TO
YEARS
UP TO
YEARS
AL-MUNAWAR COMMERCE ACADEMY 5
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 6
METHOD TO REDUCE REPOSSESSION LOSSES
1)Down Payment Should Be Large Enough .
2)Installment Period Shouldn’t 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 7
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 8
1-GROSS PROFIT RECOGNIZE IN THE PERIOD OF SALE
Using perpetual method
Sell merchandise for Rs.600 having cost Rs.500 in 20xx
Sales………………….600
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 9
X . Y . Z coGeneral Journal
DATE DESCRIPTION PR
DEBIT CREDIT
2… Account receivable 600
sales 600
2… Cost of good sold 500
Merchandise inventory 500
2… sales 600
cost of good sold 500
Income summary 100
2… Income summary 100
capital 100
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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
AL-MUNAWAR COMMERCE ACADEMY 11
THE INSTALLMENT METHOD
Using perpetual methodSell 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 12
X.Y.Z CoGeneral JOURNAL
DATE DESCRIPTION PR DEBIT CREDIT
2… Installment A/R 600
Installment sales 600
2… Cost of installment sales 500
Merchandise Inventory 500
2… Installment sales 600
cost of installment sales 500
Un realize Gross profit 100
AL-MUNAWAR COMMERCE ACADEMY 13
REALIZATION OF GROSS PROFIT WITH COLLECTION OF CASH
*Installment account receivable collected Rs.100
X . Y . Z CoGeneral Journal
REALIZE GROSS PROFIT :Collection of installment account receivable……….. Rs.100 Realize G.P= collection x G.P % = 100 x 16.666 % = 17
DATE DESCRIPTION P.R
Dr. Cr.
2… Cash 100
Installment A/R 100
2… Un realize G.P 17
Realize G.P 17
AL-MUNAWAR COMMERCE ACADEMY 14
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 15
X . Y . Z CoGeneral Journal
ENTRY OF REPOSSESSION .
Date DESCRIPTION P.R DEBIT CREDIT
2… Merchandise repossessed 300
Un realize G.P 83
Loss on repossession 117
Installment A/R 500
AL-MUNAWAR COMMERCE ACADEMY 16
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 17
ENTRIES1-ON ACCRUAL BASIS
2-ON CASH BASIS
DATE
DESCRIPTION P.R
Dr. Cr.
xx Interest receivable xxx
Interest revenue xxx
XX
cash xxx
Interest receivable xxx
DATE
DESCRIPTION Dr. Cr.
XX CASH xx
Interest revenue xx
AL-MUNAWAR COMMERCE ACADEMY 18
THANK YOU
Prepared by:
Ramsha & Nida