- CFA Exams
- CFA Exam: Level I 2021
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 21. Understanding Income Statements
- Subject 3. Revenue Recognition in Special Cases
CFA Practice Question
The installment sales method of accounting may be used for financial statement purposes only if the ______
B. collection period extends beyond 24 months.
C. installment payments are due in more than one fiscal year.
A. total amount to be collected is indeterminate.
B. collection period extends beyond 24 months.
C. installment payments are due in more than one fiscal year.
Correct Answer: A
Per APB No. 10, the installment sales method is a cash basis of accounting which violates GAAP. However, its use is justifiable in situations where the ultimate amount to be collected cannot be determined due to uncertainties with regard to default or estimating uncollectibles.
User Contributed Comments 3
| User | Comment |
|---|---|
| kalps | Insallment methd is cash based accounting as sales recognised on collection of cash, however this is against US GAAP but can be used if the cash collection is indeterminable |
| danlan | It can be used in case while cash collection is not determinable. |
| o123 | ** can only be used if the cost of the total project is known (therefore gross profit percentage is avaiable). If not you have to use Cost Recovery Method. |