The sales budget has two primary parts. Part 1 projects total sales on a monthly

Question

The sales budget has two primary parts. Part 1 projects total sales on a monthly basis and Part 2 calculates the month in which the sales will be received in cash. For which one of the following businesses would Part 1 and Part 2 be exactly the same? a. A business that only allows customers to pay by credit card at the time of sale b. A business that allows customers to partially pay at the time of service and pay the rest over 60 days c. A business that requires all customers to prepay for services at least 60 days in advance d. A business that allows monthly payment plans for all customers who have bad credit The sales budget has two primary parts. Part 1 projects total sales on a monthly basis and Part 2 calculates the month in which the sales will be received in cash. For which one of the following businesses would Part 1 and Part 2 be exactly the same? a. A business that only allows customers to pay by credit card at the time of sale b. A business that allows customers to partially pay at the time of service and pay the rest over 60 days c. A business that requires all customers to prepay for services at least 60 days in advance d. A business that allows monthly payment plans for all customers who have bad credit The sales budget has two primary parts. Part 1 projects total sales on a monthly basis and Part 2 calculates the month in which the sales will be received in cash. For which one of the following businesses would Part 1 and Part 2 be exactly the same? a. A business that only allows customers to pay by credit card at the time of sale b. A business that allows customers to partially pay at the time of service and pay the rest over 60 days c. A business that requires all customers to prepay for services at least 60 days in advance d. A business that allows monthly payment plans for all customers who have bad credit

Explanation / Answer

A business that only allows customers to pay by credit card at the time of sale. (which is Option A)

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Explanation:

Since, the payment is received immediately at the time of sale, the month of sale and the month of collection will be the same. Therefore, Option A is correct.

Partial payment at the time of service and provision of a credit period of 60 days for making the balance payment, would result in multiple months ((including the current month) for sale and for total cash collection. Therefore, Option B is incorrect.

Prepayment would involve collection of cash for services to performed in the near future (60 days). This would result in a situation of unearned revenue where cash has already been collected for services yet to be rendered. Again, the month of cash collection and sale would be different. Therefore, Option C is incorrect.

Again, a provision of monthly payment plans for all customers who have bad credit would result in different month for sale and cash collection. Therefore, Option D is incorrect.

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