ShooterMcCFA
New member
- May 28, 2011
- 0
- 0
This is the only recovery method I don’t understand, at all.
I will use the wikipedia example - which can be found at http://en.wikipedia.org/wiki/Installment_Sales_Method
2009 2010
Installment sales $1,200,000 $1,300,000
Cost on installment goods sold $840,000 $884,000
Gross profit $360,000 $416,000
Gross profit percentage 30% 32%
Cash collections
On 2009 installment sales $300,000 $600,000
On 2010 installments sales $340,000
I don’t understand why if Gross Profit Percentage is 30% (360K/1200K), why can’t I recognize all 30%? I know you have difficulties with cash collections from AR, but I’m confused as how you calculate what your current revenue and subsequent revenues will be. Is it 360K x 30%? If that’s 90K and every year I assume I’ll recognize 90K, then why doesn’t the second year (2010) follow that same pattern?.. ie 416K x 32%?
Please help. Thank you.
I will use the wikipedia example - which can be found at http://en.wikipedia.org/wiki/Installment_Sales_Method
2009 2010
Installment sales $1,200,000 $1,300,000
Cost on installment goods sold $840,000 $884,000
Gross profit $360,000 $416,000
Gross profit percentage 30% 32%
Cash collections
On 2009 installment sales $300,000 $600,000
On 2010 installments sales $340,000
I don’t understand why if Gross Profit Percentage is 30% (360K/1200K), why can’t I recognize all 30%? I know you have difficulties with cash collections from AR, but I’m confused as how you calculate what your current revenue and subsequent revenues will be. Is it 360K x 30%? If that’s 90K and every year I assume I’ll recognize 90K, then why doesn’t the second year (2010) follow that same pattern?.. ie 416K x 32%?
Please help. Thank you.