Final answer:
The installment-sales method defers gross profit in proportion to the uncollected cash from the sale, yet recognizes total revenues and costs at the point of sale. Revenue influences firm's earnings through sales, and total cost incorporates all expenses related to production and selling. This approach to revenue recognition affects the calculation of both accounting and economic profits.
Step-by-step explanation:
Under the installment-sales method, the correct statement is b. gross profit is deferred proportionate to cash uncollected from the sale of the product, but total revenues and costs are recognized at the point of sale. This accounting method recognizes revenue at the point of sale, but it matches the recognition of gross profit with the proportion of cash collected from customers. Until the cash payment is received, the gross profit remains deferred.
Revenue generally refers to the income that a firm generates from its normal business activities, typically from the sale of goods and services. Total cost is the aggregate cost that a company incurs in producing and selling its products or services, which includes all variable and fixed expenses. Understanding these business concepts are essential for making decisions about pricing, cost control, and assessing the economic profitability of a firm.
The installment-sales method is relevant when sales are made on credit and payment is received over an extended period. Therefore, it is crucial to distinguish between accounting profit (total revenue minus explicit costs) and economic profit (total revenue minus both explicit and implicit costs). Companies may report accounting profits but may not actually be economically successful if their economic profit is negative.