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Assuming Dilbert collects a $10,000 ($8,000 principal and $2,000 interest) payment in the year following the...

Assuming Dilbert collects a $10,000 ($8,000 principal and $2,000 interest) payment in the year following the year of sale, calculate the amount of income recognized under the installment sale method.

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Answer #1

Under this method of accounting, revenue is recognized when cash is exchanged.Under installmetn sale method buyer is required to pay installment which includes interest payment.

In the year of sale revenue recognised is zero as no amount is collected.

In the year following year of revenue recognized is $8,000.As the amount of principal is actual sales amount received and $2,00 is finance income.

Total income recognised =Sales+Finance income

=$8,000+2,000

=$10,000

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