New New Corporation is a wholesaler of industrial goods. Data regarding the stor

Question

New New Corporation is a wholesaler of industrial goods. Data regarding the store's operations follow:

-Sales are budgeted at $390,000 for November, $360,000 for December, and $340,000 for January.

-Collections are expected to be 85% in the month of sale, 10% in the month following the sale, and 5% uncollectible.

-The cost of goods sold is 80% of sales.

-The company purchases 40% of its merchandise in the month prior to the month of sale and 60% in the month of sale. Payment for merchandise is made in the month following the purchase.

-The November beginning balance in the accounts receivable account is $77,000.

-The November beginning balance in the accounts payable account is $320,000.

1.    Please Prepare a schedule of expected cash collections for November and December.

2.    Please Prepare a merchandise purchases budget for November and December.

Explanation / Answer

1.   schedule of expected cash collections for November and December :

   November December

85% of sale in the sales month 390000*85% 360000 *85%

= 331500 =306000

opening debit balance 77000

10% of sale in the following month         390000 *10%

= - =  39000

$408500 $345000

Note:- November'smonth total cash received

= opening receivable balance + sale - uncollectible amount - ending recievable balance

= 77000 + 390000 - (5% * 390000) - (10 % * 390000)

  = 467000 - 19500-39000

  = 408500

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