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    AngelEyes495's Avatar
    AngelEyes495 Posts: 1, Reputation: 1
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    #1

    Sep 2, 2006, 11:52 AM
    Cost Recovery Method
    I am working on a homework problem in which a person is being paid for by a 10% interest bearing note. They are accounting for the receivable with the cost recovery method. What is the treatment for the interest received?
    CliffARobinson's Avatar
    CliffARobinson Posts: 1,416, Reputation: 101
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    #2

    Mar 16, 2012, 02:59 PM
    Under the cost recovery method, both revenues and cost of sales are recognized at the point of sale, but the related gross profit is deferred until all costs of sales have been recovered. Each installment must also be divided between principal and interest, but unlike the installment method where a portion of the principal recovers the cost of sales and the remainder is recognized as gross profit, all of the principal is first applied to recover the cost of the asset sold. After all costs of sales have been recovered, any subsequent cash receipts are realized as gross profit.
    Source: Accounting Tools
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