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7 April, 2016 - 15:57

The installment method is used when collection of payments (in excess of the downpayment) extends over several years and is uncertain. It offers a saving from income tax postponement. Depending on the contract, the seller or the buyer has title to the goods.

  1. A gross profit percentage is determined on the entire contract by subtracting the cost of goods sold from the sale price, and dividing by the sale price.
  2. Each year the gross profit recognized is calculated by multiplying the amount collected by the gross profit percentage.