ReSA

Tfie Review Ssf,roof wf Acr,*wntancy

R. Papa Con S' N, Loyala Sfs,' ffxmpaloc, Manila
* Tal fifos" 734-9fi'&9 e ir.s.5,'98,-$7
Advancad Financiel" A*counting & R,eporti.nE Ravenue Recogmition
InstalLment Sa1es
Eypes of SaLs
There are two types of sales iri i:he c'JLtr:le of o.rcii^rrary act.i-vities:
1 . Regrular sJJ.*r ,,r"y e-iti:c: r iJr: casir *a.l-es an,:l ,.)recii t s3ltls - The
Lime of
sale (or the fuIl ;lcc,r;u.a1 niet.hocl) of i-evenl.re ::ecoqniti.on .is erpplied to
this partj-cula:: ti.lce r-)f sa-iar::
2" Jastaltaent eefr*s are gerirl.',ri.i.v. r:is,r-rrj l+ des,::'j.lle any t':ype of sale for
which palnneni: j's ::eqr:i-r:er: .l I; i"'r:'': i'<"-j:': rnstallnrent's cjYei: an extended
period crf time.
tietJrods of Groe6 Prr:fit, Recognnition $n ,InetetJ.lment $al-q;s
Two general approar:hes ii'!ay he '-:a ken .i.r':r r:ecogt1i.zing qlross profit on
installment sales:
l. gime of Sale (Salas baeis or A<rcm"ra} Ea.eie) -'- profit is recogmized ia
the perioct i.n rh.ich the !s&.!.& *.s iTlade' @a*right propo-rtionate poinf
tecoga5.t1.o3- of r6lrenuer so.s*s anrC g*os* profit shouJ,d be rnada aE
of sale. lfo deferred i'trem,s .1iq ];ei)r)qr:i:re:iJ"'
Z. Eime of Collection - prof:..t j-s iecr:gni;:ecl irr the periods ingubsequentJ'Jr which cash
is col-lecte.<J. ,I*"itial'-1y.. tlre giro,esr profi.t .ts defcrred thea
grog,s proy;iX is realized wh,*r r:o.1l'ertierrs &re arade. The exception to
tire deferral- <:f pr:ofit i.s the casl'r rn*tho<1 to be discussed on later
toplcs "

Eirae (point) of Collecticn - Reve-nue Eec()graiei.on after De1ivery

In sgme___eA6egr Lhe sol-Lectj,o* of, Eh* saJag priae .Ls no? reasonably
assured ancl .rerelnuer recogmJ.tion i.s dsfsrrarl, tlnder t.hi.s m-ethod the
rer.renue and re:lated ccs'-s -1rrcl profit are initially deferreci,
subsequently it- will be i:e,alieed cieperr.J-1ac on Lhe raethocl being applied.
Procerlures that relate gross profit to eoJ-l"erction p*i.oda aro:
1. Coet ra4:ov€f,'x' (aue* c"rst) aler'Uh.()d '- eol.loetions on a contrast ar€
regardsd as repreeant--i.ng first t.he rocovery of product eogts" &fter
51€cov,ery af eoct, af-I'firr#rer col,.lecf,iozrs ara ragarded as ptof,it. The
proce<Iur:e is too conse::vat.-i"r;B uncie": niosL circumstances; it can be
supporteci ool Y r-rhen. there .i.s dauht a.s tc any recoverable -ralue
associated wich eithe:,: Lhe lr:iatrc--e cf l--he instaihnent contract or the
gooris suhjeeL to repL-sscss:;..o!'r .
2 " Frofit raeover!, aethod - t:q]].ectiqps are regyarded aa reSrreaenting
first, the raaliza*j.on of tho Er:>rie pr+fit cn the contract" Aft,er
recognrition of the :f,ui} pr.:f:'it ctn tlro traneaetion, al1 furttrer
colLectiona are regardad a.s _& rcieorrr*r.y of nost. Th,is pSocedure lacks
, Sr:f f icienC COnser:',rai isin u.rriie r Iuos'.1: c i z cultts l:-anceS in rriew Of the
probakrility tirat defaLiit-: anii -':eposse:.;sj-ons over the life of
contracle wiII impair Ehe origina) p:of":-t rnarg-Ln"
3. Iastallnerrt oettrod or instalfunoaL ea].ers {cosb*prof,it rocovery uet&od}
- eac.h ao3'TeeXion on I centracrt i.s regrarcled as rryresentiagl both iaa
retu::a of cost, a1rd a xaaliza.tiort of groos profit in the ratio
ytrJch tlrasa tro faators are fnund {a t}e ori,Eina.!- saLes price. Tltis
nal*rod sarrres to spreacl tbe 6rros* profjb ofrr Etl iastalirnent saJe over
tlre fuJ..l tif;a of the instaili,ma*t cantract, Continuing €rxpenses on an
instal]menL contract are ;natcirecl against the gross profit that is
recognizetl in sucr:essiire pe::i,:cis; t-he possible faj.lure tc| realize the
ful] amount of the qross prc-'fil: -tr: t.fre e\tent of default by the buyer
j-s anticiPated.
4.Cash tfiethod - j.n this rnethod the probahiJ.ity of recovating pro&tct or
gerrice cosf,s iig rerrote. fhis raot&od is seJ.door used for salen of
nerchaad.isa anci real erstate, becau*e tlrs right to repoesaesioa vauJ,d
.l'eave car,aidatabJ.c va}:e to t$a seller.
AreR -04