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Categories: General Tax Terms

Installment Sales refer to a method of selling goods or services where the payment is made in multiple installments over a specified period rather than in a single lump sum.

In accounting, installment sales allow sellers to recognize revenue when the sale is made, while buyers typically make partial payments over time. This approach can help businesses increase sales by making purchasing more accessible for customers who may not be able to pay the full price upfront.

For example, if a company sells a piece of equipment for $10,000 and the buyer agrees to pay $2,000 upfront and $2,000 at the end of each quarter for four quarters, the seller can recognize the full revenue of $10,000 at the time of the sale, while the buyer records the liability as they make each payment.

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Alternative Meanings:
  • Installment Sales

    Installment Sales refer to a sales method where the buyer pays for the purchased goods or services in a series of payments over time, rather than making a full payment upfront. This approach is often used for large purchases like real estate or vehicles, allowing buyers to manage cash flow more effectively.

    In accounting, the seller recognizes revenue and profit on an installment sale as payments are received, rather than at the time of sale. This is especially relevant under the percentage-of-completion method, where the seller can defer recognizing some income until it is collected.

    For example, if a company sells machinery for $10,000, with the buyer making a down payment of $2,000 and agreeing to pay the remaining $8,000 in four monthly installments, the seller would record revenue progressively as each installment is received, rather than recognizing the full $10,000 at the sale's inception.

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