Finance: What is Installment Method?

What is an installment method? And how many times can we trash talk Tiger Woods in one video? Hit play to find out.

College and CareerPersonal Finance
CoursesFinance Concepts
FinanceFinance Definitions
Financial Responsibility
Personal Finance
Finance and EconomicsTerms and Concepts
LanguageEnglish Language
Life SkillsFinance Definitions
Personal Finance
SubjectsFinance and Economics

Transcript

00:26

hundred bucks ouch don't have the dough don't even have the [Man with empty jean pockets]

00:29

credit just put it on the Amex well you probably want to get some financial

00:34

therapy over your spending habits but if you can get past that well then you can [Man laying on couch in financial therapy]

00:39

likely by the clubs by paying in installments

00:43

so you'd pay say a hundred bucks each month for thirteen months and boom the

00:47

clubs are bought and paid for okay so now let's think about how this purchase

00:51

gets accounted for on the books of the guy who just sold you those clubs well [Balance sheet appears]

00:56

in this case have you simply agreed to pay for the clubs with money payable

01:00

three months later well it would have shown up on the sellers books as an

01:04

account receivable right like he was to receive money from you ninety days later

01:08

in this case however you are paying off the clubs for thirteen lucky weeks in [Accounts receivable sheet for installment payments]

01:14

which you install your payment in one thirteenth segment one hundred bucks

01:20

each right so on the books of the seller as each week goes by he collects his

01:23

hundred bucks from you and were this straight accounts receivable the number

01:28

would simply decline to twelve hundred dollars and eleven hundred dollars, then a

01:32

grand and so on well the key accounting difference here

01:34

is that when applying an accounts receivable style tracking system the

01:38

revenue is recognized all upfront and the value of the account receivable

01:43

declines in one-thirteenth parts until it's fully depreciated to zero. In the

01:48

installment method however the key difference is that revenues are not

01:53

recognized until the cash actually shows up in the bank of the golf club seller

01:58

right so really the two accounting methods are about as different as young [Man discussing accounting methods and young Tiger Woods appears]

02:02

Tiger and new Tiger and isn't he eligible for the Senior Tour yet?