[4] The installment sales method recognizes revenue and income proportionately as cash is collected.
The amount recognized in any period is thus based on two factors:[5] Below is an example of calculation of installment sales for years 2009 and 2010.
A more comprehensive table would clearly show gross profit and deferred income recognized for each year: 2009 and 2010.
In fact, interest payments are not considered when the recognized gross profit is computed on installment sales.
The installment method allows greater deferral when the payment is received in the form of a negotiable note.