When applying the installment sales method the accounting system must match collections with the specific sales year to which the cash collections relate in order to apply the correct
A)net profit percentage to accounts receivable.
B)gross profit percentage to accounts receivable.
C)net profit percentage to cash receipts.
D)gross profit percentage to cash receipts.

Question

Quizplus · Accepted Answer

The installment sales method involves recognizing profit at the time of cash collection rather than at the time of sale. The correct gross profit percentage is applied to cash receipts to determine the profit recognized. This method ensures that profit recognition aligns with the actual cash inflow from sales.

When Applying the Installment Sales Method the Accounting System Must