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The Latest Installment

How a Monetized Installment Sale May Improve Your Balance Sheet

August 9, 2021

            I have mentioned before that it is my view that a monetized installment sale may improve your balance sheet more than a cash sale would.  That may not matter very much to you unless you decide to apply for financing for some project or venture, but in that event the difference, as compared with a cash sale, might well be critical.

            For purposes of what I will present here, I am using regulations of the Securities and Exchange Commission as found at 17 CFR § 210.5-02 - Balance sheets.  If you aren’t a company that is regulated by the SEC, the accounting rules that apply to you will be found elsewhere (but may refer right back to the SEC’s Regulation anyway).  Importantly, nothing which I say here is advice to you about what to state or how to state it in your balance sheet.  That is a matter for you and your qualified professional advisers, who will rely on whatever accounting rules apply to you.

            If the SEC Regulation were to apply to you and you were to use a cash sale to dispose of an asset, you would find the following in that Regulation:

            If, however, the SEC Regulation were to apply to you and you were to use a monetized installment sale to dispose of an asset, you would find the following in that Regulation:

            Do the math.  See the difference in your balance sheet amounts, between a cash sale and a monetized installment sale.

            Again, though, remember that what I’ve presented here is taken from the SEC Regulations.  The accounting rules that are applicable to your situation may be different, and however you complete your balance sheet is a matter for you and your qualified professional advisers to determine.  What I’ve presented here is merely a factual reiteration of what you will find in the SEC Regulation.

            This much is clear:  The balance sheet effects of a cash sale and those of a monetized installment sale should be considered, when you decide between the two. — Stan Crow

Stanley Crow, our Editor

The Latest Installment addresses situations, questions and issues which are brought to us in the course of the consideration, negotiation or execution of transactions. We don't use the real names of parties to transactions, and we may edit the statement of the question to try to tell the story better. Please feel free to comment, or to take issue, or to raise your own question or situation. If you do the latter, please do not relate any confidential information.

The Latest Installment blog is edited by Stanley D. Crow, who is president of S.Crow Collateral Corp.

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