- 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
In the installment sales method, revenue is recognized ______
B. at or after the time of the sale.
C. after the cash is collected.
A. as production takes place.
B. at or after the time of the sale.
C. after the cash is collected.
Correct Answer: C
Installment sales are recognized as the associated cash is collected. The delay occurs because the sale fails to meet the measurability criterion; at the sale date, cash collection is uncertain, or the seller is required to perform future services at uncertain costs.
User Contributed Comments 5
| User | Comment |
|---|---|
| kalps | Installment method, revenue recognised after the sale - as at the sale date cash collection is uncertain |
| danlan | Cash is received after sale |
| RCapistrano | The answer "after the sale" is not technically accurate. We cannot assume that cash is necessarily collected after the sale. The more appropriate answer choice would be "when cash is collected" as stated in the reading for this section. |
| kutta2102 | I think it's ok to receive cash after sale in any circumstances because it gets recorded under accounts receivable. What makes installment sales different is the unreliability of the income even after the sale. |
| dybacis | Under IFRS (CFA notes page 166) the treatment would be different: Revenue attributable to the sale price is recognized AT the date of sale and revenue attributable to the interest component is recognized OVER time. |