A loan in which the borrower buys property under a land contract would be classified as which type of accounting?

• A. Installment accounting
• B. Fund accounting
• C. Cash accounting
• D. Accrual accounting

Answer: (A)

Verified step by step guidance

1. Understand the nature of the transaction: A land contract involves the borrower purchasing property and making payments over time, which is key to determining the accounting method.
2. Review the definitions of the accounting methods provided: Installment accounting, fund accounting, cash accounting, and accrual accounting. Each has distinct characteristics and applications.
3. Focus on installment accounting: This method is typically used when payments are made in installments over time, and revenue is recognized as payments are received.
4. Compare installment accounting with the other methods: Cash accounting recognizes transactions when cash is exchanged, accrual accounting recognizes transactions when they occur regardless of cash flow, and fund accounting is used primarily by non-profits and government entities to track funds for specific purposes.
5. Conclude that the correct classification for a loan under a land contract, where payments are made over time, aligns with the principles of installment accounting.