In accounting, a way to recognize revenue from the sale of an asset in which one records revenue as installment payments are made. For example, when one sells an expensive asset, such as land, he/she may record the profit (or loss) on that sale as installment payments are received, rather than all at once. This spreads out the recognition of revenue over a longer period of time, possibly several years. This can reduce one's capital gains tax liability.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
The accounting method of treating revenue from the sale of an asset on installments such that profits are recognized in proportion to the percentage of the sale price collected in a given accounting period. For example, if an asset with a book value of $12,000 is sold for $15,000 and payment is to occur in 5 equal installments of $3,000 each, the seller would record annual profits of ($15,000 - $12,000)/5, or $600. The installment method is a conservative way of treating an installment sale because profit is not recognized until receipt of payment.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
A method of accounting enabling a taxpayer to spread the recognition of gain on the sale of property over the payment period. Under this procedure, the seller computes the gross profit percent from the sale (that is, the gain divided by the contract price) and applies it to each payment received to arrive at the amount of the gain to be recognized.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary