Answer:
Under the installment-sales method, companies defer revenue and income recognition until the period of cash collection is true. Option (a) is true.
Step-by-step explanation:
Under the installment-sales method, companies recognize revenue and income over an extended period as cash payments are collected from customers.
This method defers the full recognition of revenue and income until cash is received.
Installment-Sales Method:
The installment-sales method is used when companies sell goods or services and allow customers to make payments in installments over an extended period rather than paying the full amount upfront.
Revenue Recognition:
Instead of recognizing the entire revenue immediately at the point of sale, the installment-sales method defers the recognition of revenue over the collection period.
This aligns with the principle of recognizing revenue when it is earned and realized.
Deferred Revenue:
The revenue from the sale is deferred, and only a portion of it is recognized in the income statement each period as cash payments are collected.
The remaining deferred revenue is carried forward on the balance sheet.
Income Recognition:
Similarly, the income associated with the sale is also deferred.
The profit on the sale is recognized proportionally to the cash collected, spreading the recognition of income over the installment period.
Matching Principle:
The installment-sales method follows the matching principle, ensuring that revenue recognition is tied to the actual collection of cash.
This method reflects a more accurate representation of the company's financial performance.
Financial Statements:
The company's income statement reflects only the portion of revenue and income that corresponds to the cash collected during a specific accounting period.
The balance sheet shows the remaining deferred revenue.
Thus, option (a) is true.