An installment sale is a sale of property where you'll receive at least one payment after the tax year in which the sale occurs. You're required to report gain on an installment sale under the installment method unless you "elect out" on or before the due date for filing your tax return (including extensions) for the year of the sale. You may elect out by reporting all the gain as income in the year of the sale in accordance with your
method of accounting on Form 4797, Sales of Business Property, or on
Schedule D (Form 1040), Capital Gains and Losses and
Form 8949, Sales and Other Dispositions of Capital Assets. Installment method rules don't apply to sales that result in a loss. You can't use the installment method to
report gain from the sale of inventory or stocks and securities traded on an established securities market. You must report any portion of the gain from the sale of depreciable assets that's ordinary income under the depreciation recapture rules in the year of the sale. For additional situations and information about when you can't report payments on the installment method, see
Publication 537, Installment Sales. Your total gain on an installment sale is generally the amount by which the selling price of the property you sold exceeds your adjusted basis in that property. The selling price includes the
money and the fair market value of property you received for the sale of the property, any of your selling expenses paid by the buyer, and existing debt encumbering the property that the buyer pays, assumes, or takes subject to. Under the installment method, you include in income each year only the part of the gain you receive or are considered to have received. You don't include in income the part of the payment that's a return of your basis
in the property. Use Form 6252, Installment Sale Income to report an installment sale in the year the sale occurs and for each year of the installment obligation. You may need to attach
Form 4797, Sales of Business Property and Schedule D (Form 1040) to your Form 1040, U.S. Individual Income Tax Return or
Form 1040-SR, U.S. Tax Return for Seniors. You must also include in income any interest as ordinary income. For details, see Reporting Interest below. You generally report interest on an installment sale as ordinary income in the
same manner as any other interest income. If the installment sales contract doesn't provide for adequate stated interest, part of the stated principal may be recharacterized as unstated interest or original issue discount for tax purposes, even if you have a loss. You must use the applicable federal rate (AFR) to figure the amount of stated principal recharacterized as unstated interest or original issue discount. The AFRs are published monthly in the
Index of Applicable Federal Rates (AFR) Rulings. For additional information, refer to Publication 537,
Installment Sales. ASC 310-10-50-2 specifies the information required to be addressed in an accounting policy footnote for all loans and trade receivables. ASC 310-10-50-2 The summary of significant accounting policies shall include the following:
Additionally, ASC 310-10-50-4 requires reporting entities to disclose the allowance for credit losses (i.e., allowance for doubtful accounts), unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs in their financial statements. In addition, reporting entities should disclose their policy for writing off uncollectible trade accounts receivable (excluding credit card receivables) that have a contractual maturity of one year or less, and arose from the sale of goods or services. Receivables are generally considered to be financial assets, and as such, reporting entities are required to comply with the fair value disclosure requirements of ASC 825, Financial Instruments (see FSP 20). However, as noted in ASC 310-10-50-26, reporting entities do not need to provide the fair value disclosures for trade receivables due in one year or less.
The accounting policy disclosures should include the following: Excerpt from ASC 310-10-50-6
As required by ASC 310-10-50-7 and ASC 310-10-50-7A, reporting entities should disclose the amount of financing receivables on nonaccrual status and the amounts that are 90 days or more past due and still accruing, as of each balance sheet date. They should also disclose the aging for financing receivables that are past due at the end of the reporting period. Reporting entities may have credit exposure related to off-balance-sheet loan commitments, standby letters of credit, certain financial guarantees, and other similar instruments (other than those within the scope of ASC 815, Derivatives and Hedging). In addition to the disclosures required by ASC 450, Contingencies (see FSP 23), reporting entities should also describe the accounting policies and methods used to estimate its liabilities related to off-balance-sheet credit exposures and related charges. The disclosure should discuss factors that influenced management’s judgment and the risk elements relevant to their financial instruments. Reporting entities are also required by ASC 310-10-50-29 to disclose quantitative and qualitative information by class that indicates the credit quality of their financing receivables. This information should include all of the following:
In addition, if the reporting entities disclose internal risk ratings, they should provide qualitative information on how those ratings relate to the risk of loss. New guidance ASU 2016-13 introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The ASU also provides updated guidance regarding the impairment of available-for-sale debt securities and includes additional disclosure requirements. The accounting and disclosure requirements of ASU 2016-13 are covered in PwC's Loans and Investments guide and are not discussed in this guide. Allowance for credit losses related to financing receivables The disclosure requirements discussed in this section apply to financing receivables, except for the receivables listed in ASC 310-10-50-7B (e.g., certain trade accounts receivable, receivables measured at fair value with changes in fair value reported in earnings, receivables measured at lower of cost or fair value, and participant loans in defined contribution pension plans), and a lessor’s net investment in leveraged leases. ASC 310 requires reporting entities to disclose information about financing receivables’ allowance for credit losses at a portfolio segment level. ASC 310-10-50-11B
In order to disaggregate the information required by items (g) and (h) on the basis of the impairment methodology, ASC 310-10-50-11C requires reporting entities to separately disclose:
In addition, ASC 210-10-45-13 requires reporting entities to deduct asset valuation allowances for losses from the assets or group of assets to which the allowances relate. ASC 310-10-50-14 requires reporting entities to include appropriate disclosure of asset valuation allowances in the footnotes. Finally, if loan products have contractual terms that expose the reporting entities to risks and uncertainties, the disclosure requirements of ASC 275, Risks and Uncertainties, may be required. See FSP 24 for discussion of disclosure requirements associated with risks and uncertainties. New guidance Upon adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASC 310-10-50-7A, and ASC 310-10-50-11B through ASC 310-10-50-11C will be superseded. The accounting and disclosure requirements of ASU 2016-13 are covered in PwC's Loans and Investments guide and are not discussed in this guide. Impaired loans Excerpt from ASC 310-10-35-16 A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Sometimes a financing receivable may meet the definition of an impaired loan. In these situations, ASC 310-10-50-14A requires reporting entities to disclose both the accounting policy and the amounts of such loans. In addition, the following disclosures are required for partially charged off loans. These disclosures are not applicable to fully charged off loans since both the recovered investment and allowance for credit losses will equal zero. ASC 310-10-50-15 An entity shall disclose all of the following information about loans that meet the definition of an impaired loan in paragraphs 310-10-35-16 through 35-17 by class of financing receivable:
As discussed in ASC 310-10-50-11B(c), reporting entities should disclose the activity in the total allowance for credit losses related to loans for each period presented, including the balance in the allowance at the beginning and end of each period, additions charged to operations, direct write-downs charged against the allowance, and recoveries of amounts previously charged off. Finally, as discussed in ASC 310-10-50-19, when a change in present value attributable to the passage of time is recorded as interest income, disclosure of the amount of the change is required. New guidance Upon adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASC 310-10-50-15 through ASC 310-10-50-16 will be superseded. The accounting and disclosure requirements of ASU 2016-13 are covered in PwC’s Loans and Investments guide and are not discussed in this guide. Creditor disclosures of troubled debt restructurings ASC 310-40 requires a creditor to disclose the amount of commitments, if any, it has made to lend additional funds to debtors whose receivables to the creditor have been modified in a troubled debt restructuring. However, for impaired loans that have been restructured in a troubled debt restructuring involving a modification of terms, the disclosures required by ASC 310-10-50-15(a) and ASC 310-10-50-15(c) are not required in years after the restructuring if both of the following conditions exist:
This disclosure exception should be applied consistently for all restructured loans in a troubled debt restructuring. ASC 310-10-50-31 through ASC 310-10-50-34 also provide disclosure requirements for a creditor’s troubled debt restructuring of financing receivables, including a creditor’s modification of a lease receivable that meets the definition of a troubled debt restructuring. This guidance is not applicable to certain receivables listed in ASC 310-10-50-32 (i.e., certain trade accounts receivable, receivables measured at fair value with changes in fair value reported in earnings, receivables measured at lower of amortized cost basis or fair value, and participant loans in defined contribution pension plans). For all income statement periods presented, reporting entities must disclose the following for any troubled debt restructurings of financing receivables occurring during the period:
If there was a payment default during the period on any financing receivables that were modified as a troubled debt restructuring within the twelve months preceding the balance sheet date, reporting entities should also disclose the following for each income statement presented:
Loans acquired with deteriorated credit quality A reporting entity may purchase loans with deteriorated credit quality. ASC 310-30 provides specific disclosure requirements for these types of loans. For such loans, ASC 310-30-50-1 requires reporting entities to describe in their footnotes how prepayments are considered when determining contractual cash flows and cash flows expected to be collected. In addition, ASC 310-30-50-2 requires additional disclosures. ASC 310-30-50-2 In addition to disclosures required by other generally accepted accounting principles (GAAP), for each balance sheet presented, an investor shall disclose the following information about loans within the scope of this Subtopic:
New guidance Upon adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ASC 310-30-50-2 will be superseded. The accounting and disclosure requirements of ASU 2016-13 are covered in PwC’s Loans and Investments guide and are not discussed in this guide. What type of account is interest on notes receivable?When the note is due within less than a year, it is considered a current asset on the balance sheet of the company the note is owed to. If its due date is more than a year in the future, it is considered a non-current asset. The interest income on notes receivable is recognized on the income statement.
Is interest receivable income?You can consider any interest income that a company has earned to be interest revenue, whether or not the business has received the income. Comparatively, interest receivable only refers to the interest income that a company has yet to receive from the customer, client or debtor who owes it.
What is note receivable income?Notes Receivable Definition
A note receivable is a written promise to receive a specific amount of cash from another party on one or more future dates. This is treated as an asset by the holder of the note.
Is interest receivable a trade receivable?Some examples of nontrade or other receivables include: Interest receivable. Income tax receivable. Insurance claims receivable.
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Interest income collected on a note receivable is considered an additional sale.
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