ShmoopTube
Where Monty Python meets your 10th grade teacher.
Search Thousands of Shmoop Videos
Finance: What is Installment Method? 0 Views
Share It!
Description:
What is an installment method? And how many times can we trash talk Tiger Woods in one video? Hit play to find out.
- Social Studies / Finance
- Finance / Financial Responsibility
- College and Career / Personal Finance
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
Transcript
- 00:00
Finance a la shmoop what is an installment method? okay well first let's
- 00:08
start with a question what's an installment? basically it's a
- 00:12
way of buying things really wanted those silver plated golf clubs that guaranteed [Golf ball on a tee and golf club appears]
- 00:18
to make you play like Tiger when he was good you know the young Tiger not the
- 00:22
new whining Tiger who can't break par... well those golf clubs cost thirteen
Full 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?
Up Next
GED Social Studies 1.1 Civics and Government
Related Videos
What is bankruptcy? Deadbeats who can't pay their bills declare bankruptcy. Either they borrowed too much money, or the business fell apart. They t...
What's a dividend? At will, the board of directors can pay a dividend on common stock. Usually, that payout is some percentage less than 100 of ear...
How are risk and reward related? Take more risk, expect more reward. A lottery ticket might be worth a billion dollars, but if the odds are one in...