Deferred gross profit is generally treated as unearned revenue and classified as a current liability under the installment-sales method.

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Deferred gross profit arises when revenue is recognized before the related costs have been incurred. It is recorded as a liability since the company has not yet earned the profit. Under the installment-sales method, revenue is recognized as payments are received from the customer, and deferred gross profit is treated as unearned revenue, hence classified as a current liability.

Deferred Gross Profit Is Generally Treated as Unearned Revenue and Classified