Question

XYZ made a number of sales in 2014 and 2015 that required use of the instalment method. The following information regarding the sales is available:

Instalment Sales	150000	160000
Cost Of Instalment Sales	115500	104000
Collections on 2014 Sales	40000	70000
Collections on 2015 Sales		30000

Give the journal entries relating to instalment sales for the years 2014 and 2015. Ignore interest charges. Please make sure your final answer(s) are accurate to 2 decimal places. Assume that all entries are made on December 31. Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 15 would be 15/Jan).

Answer 1

Journal entries for 2014 sales and its cash collections

Date	Account Titles	Debit	Credit
2014
31-Dec	Instalment Accounts Receivable	150000
	Inventory		115500
	Deferred Gross Profit		34500
	(Entry for initial recognition of instalment sale)
31-Dec	Cash	40000
	Instalment Accounts Receivable		40000
	(Cash Received for sales)
	Cost of Goods Sold	30800
	Deferred Gross Profit	9200
	Sales Revenue		40000
	(Recognition of sales revenue for part of cash collected)
2015
31-Dec	Cash	70000
	Instalment Accounts Receivable		70000
	(Cash Received for sales)
	Cost of Goods Sold	53900
	Deferred Gross Profit	16100
	Sales Revenue		70000
	(Recognition of sales revenue for part of cash collected)

Cost of Sales Percentage = Cost of Sales / Instalment sales x 100
= 115500 / 150000 x 100 = 77%

Sales is recognised when cash is collected, cost of goods sold for instalment sales = Cash Collected x 77%
Deferred Gross Profit written back = Cash Collected - Cost of Goods Sold

Journal entries for 2015 sales and its cash collections

Date	Account Titles	Debit	Credit
2015
31-Dec	Instalment Accounts Receivable	160000
	Inventory		104000
	Deferred Gross Profit		56000
	(Entry for initial recognition of instalment sale)
31-Dec	Cash	30000
	Instalment Accounts Receivable		30000
	(Cash Received for sales)
	Cost of Goods Sold	19500
	Deferred Gross Profit	10500
	Sales Revenue		30000
	(Recognition of sales revenue for part of cash collected)

Cost of Sales Percentage = Cost of Sales / Instalment sales x 100
= 104000 / 160000 x 100 = 65%