![]() ![]() The risk of bad debt associated with uncollectible accounts increases for these companies, since payment is received over a relatively long period of time. Installment sales are oftentimes used by industries that manufacture furniture, automobiles, and heavy equipment. The term installment refers to a sales approach that allows customers to make periodic payments over an extended timeframe. Generally, there are two accepted ways to account for these transactions: the installment sales method and the cost recovery method. If the sales price is not reasonably assured after delivery of the product or service to a customer, the company may choose to defer recognizing revenue until cash is received. Revenue can be recognized at the point of sale, before, and after delivery, or as part of a special sales transaction. ![]() 5 states that companies cannot recognize revenues as being earned until they are realized or realizable, and the company has substantially completed what it needs to do in order to be entitled to payment. ![]() ![]() The installment sales method recognizes income in the accounting periods it's collected, and not at the time of sale. The term installment sales refers to an accounting method that emphasizes the collection of cash from customers rather than the sales transaction. ![]()
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