Inventory sold on installment

@carol1022 

To preface, your client should absolutely seek the advice of their own CPA on this.  This is a very in-depth topic and car dealers that offer buy here pay here (BHPH) arrangements can get into cash flow issues quickly.  Your client will need to report the entire sale as income if they are on cash basis because a note received as an unconditional promise to pay is considered a "cash equivalent".

See these links for more info:

https://www.sgcaccounting.com/Resources/TAXREFORM.pdf 

https://hbkcpa.com/new-tax-act/# 

Since cash basis taxpayers should not have inventory on their books, the entry to record the sale is a debit to cash for the down payment, a debit to note receivable for the financed amount and a credit to income for the sale price.  Payments received on the note should be recorded as a debit to cash for the total payment, a credit to note receivable for the principal portion and a credit to interest income for the interest portion.

Thank you for your reply.  Just to clarify, I AM the CPA.  I've been certified in Texas since 1990 and have spent all my working years in public accounting.  While I have had many complex tax situations cross my desk over the years, I have never had a client who was a used car dealer that did his own financing and at the same time operated as a Schedule C sole proprietor.  Goes to show, you never get too old or too experienced to learn....  Thanks again.  (I am carol1022...I seem to have managed to open two accounts, haven't used the community board in a long time)