The Collection of Credit Sales Is Usually Predictable and Reasonably

question 66

Essay

The collection of credit sales is usually predictable and reasonably assured as a result of credit approval,collections procedures,and historical evidence.In such cases,revenue is appropriately recognized at the point of sale.If a company makes credit sales to customers of relatively poor credit risk,however,recognition of revenue at the point of sale may be inappropriate.Although revenue may have been earned and is measurable,ultimate collection of the proceeds on the sale are highly uncertain.The creditor in such circumstances may defer the recognition of revenue until the amount due is collected.The installment sales method thus may be used.Under the installment sales method,both sales and cost of sales are recognized in the period of sale,but the related gross margin is deferred to those periods in which cash is collected.The gross margin rate for the installment sales is computed and multiplied times the cash collection to determine the portion of deferred gross margin to be recognized.
Required:
Evaluate the conceptual soundness of the installment sales method.

---

Definitions:

Moral Human

A concept referring to an individual who adheres to principles of right and wrong behavior in society, often guided by personal conscience and societal norms.

Right to Life

The right to life is a fundamental human right that asserts the illegal nature of arbitrarily depriving someone of their life, forming the basis for laws against murder, genocide, and other forms of violence.

Autonomy

The capacity to make an informed, un-coerced decision; often discussed in ethical, legal, and medical contexts as a fundamental human right.

Threatened Penalty

A consequence or punishment that is warned to be imposed upon someone for wrongdoing or breaking a rule.