specific sales year so that the correct gross profit percentage be applied. On the balance sheet, "the accounts receivable - installment sales" is classified as current assets if it is due within 12 months of the balance sheet. Otherwise, it is classified as long term assets. Under the GAAP, the interest component of the periodic cash proceeds is computed separately. In fact, interest payments are not considered when the recognized gross profit is computed on installment sales. Certain procedures differentiate between principal and interest payments on customer receivables. Comparison to the cash and accrual method Cash method – The cash method requires that an amount be included in gross income when it is actually or constructively received. The installment method allows greater deferral when the payment is received in the form of a negotiable note. The cash method does not allow for differing between cost recovery and gain. Accrual method – The accrual method requires income to be recognized as soon as the taxpayer has a right to the income regardless of when the payment is actually received. As such, the taxpayer would have to recognize the full amount of the sale despite the fact that the purchase price may not be paid in full for years. See also Tax Doctrine of cash equivalence Accounting methods Installment sale (USA) Revenue recognition Tax accounting References Sources Accounting systems