Income on installment sales is generally recognized in the financial statements at the date of sale and the receivables are shown as current assets. Many companies, particularly in the merchandising field, defer the income on such sales for Federal income tax purposes until the receivables are collected. Some of these companies had been reflecting the deferred taxes as current liabilities, while other companies had been reflecting them as noncurrent liabilities.

In order to require the correct classification of the deferred taxes on a uniform basis, the SEC issued Accounting Series Release No. 102 in December 1965, stating that the deferred taxes must be shown as a current liability if the related installment receivables are shown as a current asset. The arguments which have been advanced against the current classification of the deferred taxes cannot be justified either from a theoretical or from a practical standpoint.