Cash Receipts The sales budget for Perrier Inc. is forecasted as follows: To pre

Question

Cash Receipts
The sales budget for Perrier Inc. is forecasted as follows:

To prepare a cash budget, the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales:

60 percent in the month of sale.

20 percent in the month following sale.

15 percent in the second month following sale.

5 percent uncollectible.

The company gives a 1 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $25,000, of which $6,000 represents uncollected March sales and $19,000 represents uncollected April sales. Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.

Explanation / Answer

Statement showing Cash Collections Particulars May June July August Total Sales Revenue    140,000.00         140,000.00        180,000.00    120,000.00    460,000.00 Collection in same month@60% (A) = Collections *99%      83,160.00            83,160.00        106,920.00      71,280.00    273,240.00 Collection in next month@20%(b)            28,000.00          28,000.00      36,000.00      56,000.00 Collection in second month@15%(c)          21,000.00      21,000.00      21,000.00 March AR = 6,000 = Collection in May 6000/20%*15% (d)        4,500.00        4,500.00 April AR = 19,000 Collection in May = 19000 *.20/.40 Collection in June = 19000*.15/.40   (e)        9,500.00              7,125.00      16,625.00 Total Collections a+b+c+d+e      97,160.00         118,285.00        155,920.00    371,365.00

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