b.Actual sales for October and November and expected sales for December are as f
ID: 2435746 • Letter: B
Question
b.Actual sales for October and November and expected sales for December are as follows:
October November December
Cash sales $65,000 $70,000 $83,000
Sales on account $400,000 $525,000 $600,000
Sales on account are collected over a three-month period as follows: 20% collected in the month of sale, 60% collected in the month following sale, and 18% collected in the second month following sale. The remaining 2% is uncollectible.
Prepare a schedule of expected cash collections for December. (Omit the "$" sign in your response.)
December cash sales $ 83,000
Collections on account:
October sales
November sales
December sales
Ok, to get collections on account for November sales, we do 525,000 x 60%
to get collections on account for October, we do 400,000 x 20%
My question is, isn't the following month for December a January? and second month following sale is Febuary.. I really don't understand why we calculate to the past months? Any good explanation for this?
Explanation / Answer
Hello Thanks for sending a message to me. The simple explaination to understand is two folds:- a) First see the months for which the cash budget is to be prepared. Here in this question the cash budeget is to be prepared for December. b) Then write down the monts when collections will come- As per the Credit policy - 20% in the month of sale 60% in the following month and 18 % in the next month. Therefore Octomber sale - 20 % in Oct, 60% in Nov and 18% in Dec November sale = 20% in Nov, and 60% in Dec And December sale - 20% in December Hence you will take the amount of each month - which is being collected in December. January and Feb - figures will not be looked, as we are not preparing the cash budget for these months I hope you have under stood the explaination.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.