Accounting principle research - Instalment sales
SUBJECT PROJECT 1 Accounting Principle Research INSTALLMENT SALES LECTURER: BUI PHUONG UYEN STUDENTS OF KT1012 1. Phan Nguyễn Ngọc Xuân Mỹ 101537 2. Võ Ngọc Trang Đài 101419 3. Tô Nguyễn Khánh Linh 101470 4. Phạm Trung Hiếu 101568 2012– 2013 MINISTRY OF EDUCATION AND TRAINING HOA SEN UNIVERSITY FACULTY OF ECONOMICS AND COMMERCE SUBJECT PROJECT 1 Accounting Principle Research INSTALLMENT SALES LECTURER: BUI PHUONG UYEN STUDENTS OF KT1012 1. Phan Nguyễn Ngọc Xuân Mỹ 101537 2. Võ Ngọc Trang Đài 101419 3. Tô Nguyễn Khánh Linh 101470 4. Phạm Trung Hiếu 101568 Note for faculty: Date: ___/___/___ For the writer: (Signature & full name) 2012– 2013 MINISTRY OF EDUCATION AND TRAINING HOA SEN UNIVERSITY FACULTY OF ECONOMICS AND COMMERCE Project 1: Accounting Principles Research Lecturer: Bui Phuong Uyen INSTALLMENT SALES Group 1 – Class KT1012 Page i COMMENT OF LECTURER MARK: Project 1: Accounting Principles Research Lecturer: Bui Phuong Uyen INSTALLMENT SALES Group 1 – Class KT1012 Page ii ABSTRACT Installment sale is a method of sale that the buyer pays equal periodic payments with interest instead of paying in full. In difficult economic times, the practice of having a lot of money to buy valuable items for immediate consumption is not easy at all. Knowing this fact, a series of installment sales company, finance company associated continuously offer attractive programs to increase the power of consumers, as well as it helps sell the business assets of great value easier. Thus, that is why it becomes very popular nowadays. Because of its popularity, our group decided to make a research about it for some reasons. First of all, all the information is useful for us in practice so it is worth studying. Secondly we have a chance to understand and apply our old lessons that we have just studied in Financial Accounting 1 and 2. The knowledge that we have learned in class and information from the internet were used as data for use to carry out the research successfully. Most of information in this research was written by our understanding and the rest is on the Internet. The general conclusion can be that installment sale is an essential activity for any business and its record is quite simple. Besides that, it's still much to learn. So the information above is worth reading. Project 1: Accounting Principles Research Lecturer: Bui Phuong Uyen INSTALLMENT SALES Group 1 – Class KT1012 Page iii ACKNOWLEDGMENT We’re all the students who are lack of academic knowledge. So we couldn’t accomplish this project without help from our lecturer – Ms. Bui Phuong Uyen. Although she was so busy at her work, she guided us enthusiastically. From finding and analyzing information to writing a report, she gave us clear instructions. Her assistance has been very meaningful for our research than ever before. In addition, we’re indebted Mr. Ho Sy Tuy Duc for his help in advising and answering our difficult questions. Though Mr. Duc wasn’t in charge of instructing the project, he replied all our concerns. Last but not least, we really appreciate our members who whole-heartedly paid a high concentration as well as their zealous attitude in attempt to do this project. Project 1: Accounting Principles Research Lecturer: Bui Phuong Uyen INSTALLMENT SALES Group 1 – Class KT1012 Page iv CONTENT COMMENT OF LECTURER i ABSTRACT ii ACKNOWLEDGMENT iii CONTENT iv TABLE OF FIGURES vi INTRODUCTION vii 1. General terms related to installment sales 1 1.1. Party 1 1.2. Interpretation 1 2. Installment sale in terms of IAS 18 and VAS 14 3 2.1. International Accounting Standards 18 (IAS 18 – Revenue – Installment sales) . 3 2.1.1. Definition 3 2.1.2. Method of calculating and journalizing 5 2.1.2.1. For the buyers 5 2.1.2.2. For the sellers 7 2.2. Vietnamese Accounting Standards 14 (VAS 14 – Revenue and other incomes)12 2.2.1. Definition 12 2.2.2. Journalizing 13 2.2.2.1. For the buyers 13 2.2.2.2. For the sellers 14 2.3. Case 15 2.3.1. International accounting system 15 2.3.1.1. Case 1 – the buyers’ transactions 15 2.3.1.2. Case 2 – the sellers’ transactions 18 2.3.2. Vietnamese accounting system 21 3. Installment sales agreement and contract 22 4. Impacts on the financial statements 26 4.1. Balance sheet 26 4.2. Income Statement 28 4.3. Statement of cash flows 30 Project 1: Accounting Principles Research Lecturer: Bui Phuong Uyen INSTALLMENT SALES Group 1 – Class KT1012 Page v 4.4. Notes to the financial statements 31 5. Forms of frauds and errors related to installment sales 31 5.1. Forms of frauds and errors 31 5.2. Misleading financial accounting 33 6. Facts – Adjusted policies on installment sales 36 6.1. Vietnamese policies 36 6.2. Global policies 37 CONCLUSION – RECOMMENDATIONS 40 REFERRENCES a APPENDIX b 1. International Accounting Standards (IAS) 18 b 2. Vietnamese Accounting Standards (VAS) 14 e 3. Installment sales agreement n 4. Installment sales income r 5. COSO 1992 s 6. SAX 2002 – SAX section 404 s 7. Reasons for differences between VAS and IAS s Project 1: Accounting Principles Research Lecturer: Bui Phuong Uyen INSTALLMENT SALES Group 1 – Class KT1012 Page vi TABLE OF FIGURES Figure 1: Promissory note 2 Figure 2: Amortization of Installment Notes 6 Figure 3: Tax Evasion Amount 29 Figure 4: Sarbanes-Oxley Act 37 Project 1: Accounting Principles Research Lecturer: Bui Phuong Uyen INSTALLMENT SALES Group 1 – Class KT1012 Page vii INTRODUCTION In the economy which has many troubles, installment sale is very popular with people in the world, especially in Viet Nam. Buyers can buy something they want without paying in full for this item and sellers may have more customers if they have products for installment. Thus, the economy will be improved. However, installment sale still have disadvantages. It makes a company which have installment sale will be hard to record all transactions occurred in the period. Besides, customers can have a high interest payment when they buy something as installment. Our group chooses this subject to make clearer about installment sales, how it impact on the operation of the company and solutions to overcome those difficulties. Project 1: Accounting Principles Research Lecturer: Bui Phuong Uyen INSTALLMENT SALES Group 1 – Class KT1012 Page 1 1. General terms related to installment sales 1.1. Party The parties to this agreement are The seller The purchaser 1.2. Interpretation The purchase price: the amount of money needed to purchase. The balance of the purchase price: the purchase price minus the first payment. Sales price of a home $100,000 Initial deposit $10,000 Balance of purchase price $90,000 Purchase price (total) $100,000 Business day: A business day is considered every official working day of the week. Another common term isworking day. Typically, these are the days between and including Monday to Friday and do not include public holidays and weekends The effective date: Aneffective dateoras of dateis thedateupon which something is considered to take effect. The final payment: That brings a balance to zero or completely satisfies an obligation. The final payment date: the day that that brings a balance to zero or completely satisfies an obligation. The first payment: the first payment in the Schedule. The first payment date: the date that incurs the first payment. The instalment: amount of money owed has been divided, so that can each part happens or is paid at different times util the end or total is reached. The instalment due date: To avoid penalties, you must pay your instalments in full before it passes to the due date. Principal: the original amount of a debt on which interest is calculated. Interest: money which is charged by a bank or other financial organization for borrowing money. [...]... or car 3 Based on Chapter 14 – Long-term liabilities – Bonds and Notes - page 636 - Financial Accounting 12e – Warren – Reeve - Duchac Page 4 Project 1: Accounting Principles Research INSTALLMENT SALES Lecturer: Bui Phuong Uyen Group 1 – Class KT1012 2.1.2 Method of calculating and journalizing 2.1.2.1 For the buyers Issuing an installment note (Based on Financial Accounting 12e – by Warren – Reeve... presented respectively in this part Installment sales method o Calculating 4 Chapter 5 – Intermediate Accounting 4th – Spiceland – Sepe - Tomassini Page 7 Project 1: Accounting Principles Research INSTALLMENT SALES Lecturer: Bui Phuong Uyen Group 1 – Class KT1012 The installment sales method is used to recognize revenue after the sale has occurred and when sales are stipulated under much extended cash... straight-line method 31 Closed the interest expense account In 2013: June 30 Paid the semiannual interest on the bonds September 30 Paid the annual payment on the note, which consisted of interest of $19,200 and principal of $ 56,767 6 Based on PR 1 4-4 A Chapter 14 – Long-term liabilities – Bonds and Notes - Financial Accounting 12e – Warren – Reeve - Duchac Page 15 Project 1: Accounting Principles Research. .. sales and $340,000 on its 2010 installment sales Installment sales receivable 2010 1,300,000 Inventory 884,000 Deferred gross profit 416,000 Page 10 Project 1: Accounting Principles Research INSTALLMENT SALES Lecturer: Bui Phuong Uyen Group 1 – Class KT1012 Cash 940,000 Installment sales receivable 2009 600,000 Installment sales receivable 2010 340,000 This... certain sales using the installment sales method The perpetual inventory system is used Information related to installment sales for 2006 and 2007 is as follows: 2006 2007 Sales EUR 300,000 EUR 400,000 Cost of sales 180,000 280,000 2006 sales 100,000 110,000 2007 sales 150,000 Customer collections on: Required: 1 Calculate the amount of gross profit that would be recognized each year from installment sales. .. and 2 assuming that Lecole uses the cost recovery method to account for its installment sales Solutions Requirement 1 2006 Deferred gross profit: 300,000 – 180,000 = 120,000 7 PR 5-1 Chapter 5 – Intermediate Accounting 4th – Spiceland – Sepe - Tomassini Page 18 Project 1: Accounting Principles Research INSTALLMENT SALES The gross profit percentage: Lecturer: Bui Phuong Uyen Group 1 – Class KT1012 x100=... installment sales Cash 250,000 Installment receivables 2007 250,000 To recognize gross profit from installment sales Deferred gross profit 85,000 Realized gross profit 85,000 Requirement 3 Date Cash Collected Cost Recovery Gross Profit $100,000 $100,000 -0 - 2006 sales $100,000 $ 80,000 $20,000 2007 sales 150,000 150,000 $250,000 $230,000 2006 2006 sales 2007 2007 totals 2006 -0 $20,000... installment sales On 2010 installments sales $340,000 2009 income from installment sales calculation: The income recognized in 2009 equals cash collections in 2009 multiplied by the gross profit percentage in 2009 and is calculated as follows: $300,000×30% = $90,000 Such income is shown on the 2009 income statement as 2009 income from installment sales Page 8 Project 1: Accounting Principles Research. .. 416,000 (307,200) year Gross profit recognized on current year's sales Plus: Gross profit recognized on installment sales of prior Page 9 90,000 108,800 180,000 Project 1: Accounting Principles Research INSTALLMENT SALES Lecturer: Bui Phuong Uyen Group 1 – Class KT1012 years Total gross profit recognized in the year $90,000 $288,800 Installment sales and the related costs of goods sold must be tracked by... Based on http://www.irs.gov/publications/p537/ar02.html#en_US_2011_publink1000221591 Page 3 Project 1: Accounting Principles Research INSTALLMENT SALES Lecturer: Bui Phuong Uyen Group 1 – Class KT1012 Special rule Dealers of time-shares and residential lots can treat certain sales as installment sales and report them under the installment method if they elect to pay a special interest charge Stock