Final answer:
The statement is true: the installment-sales method only defers the gross profit from sales, recognizing revenue and cost of goods sold at the point of sale and deferring the profit until cash payments are received.
Step-by-step explanation:
The statement that the installment-sales method defers only the gross profit instead of both the sales price and cost of goods sold is true. In this accounting method, revenue and cost of goods sold are recognized at the point of sale, but the gross profit recognition is deferred. This means that when a sale is made on installment, the cost of goods sold is recognized immediately along with the revenue, but the gross profit, which is the difference between the sales price and the cost of goods sold, is deferred and recognized as the cash payments are received.
Essentially, under the installment-sales method, the reported income reflects cash collected during the period. This method is used when there is uncertainty about the collection of the sale price. It helps in matching revenue with the cash inflows, avoiding the distortion that can occur when sales are reported at full value even though cash has not been received, and the collection cannot be ensured.
Deferred gross profit is reported as a liability on the balance sheet under current liabilities if the profit is expected to be recognized within a year, or under long-term liabilities if it will be realized beyond the one-year timeframe. Over time, as installments are paid, the deferred gross profit reduces and the earned profit is reported on the income statement.