Rich company\'s experience shows that 20% of its sales are for cash and 80% are

Question

Rich company's experience shows that 20% of its sales are for cash and 80% are on credit. An analysis of credit sales shows that 50% are collected in the month following the sale, 45% are collected in the second month, and 5% prove to be uncollectible. Calculate items:

Sales....... August-$500000 September-$525000 October-$535,000 November-$560000

                                                                           October         November

                               Receipts from cash sales........

                               Collections from Aug. Credit Sales......

                               Collections from Sept. Credit Sales.......

                               Collections from October credit sales....

                              Total cash collections during the month....

Explanation / Answer

Hi,

Please find the answer as follows:

Formulas are mentioned below:

Collections from Aug. Credit Sales = (500000 - 0.2*500000)*0.45 = 180000

Collections from Sep. Credit Sales (Oct) = (525000 - 0.2*525000)*0.50 = 210000

Collections from Sep. Credit Sales (Nov) = (525000 - 0.2*525000)*0.45 = 189000

Collections from Oct. Credit Sales (Nov) =(535000 - 0.2*535000)*0.5 = 214000

Thanks.

October November Receipts from Cash Sales 107000 112000 Collections from Aug. Credit Sales 180000
Collections from Sept. Credit Sales 210000 189000 Collections from October credit sales
214000 Total cash collections during the month 497000 515000

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