Myers and Associates, a famous law office in California, bills its clients on th

Question

Myers and Associates, a famous law office in California, bills its clients on the first of each month. Clients pay in the following fashion: 40% pay at the end of the first month, 30% pay at the end of the second month, 20% pay at the end of the third month, 5% pay at the end of the fourth month, and 5% default on their bills. Myers wants to know the anticipated cash flow for the first quarter of 2009 if the past billings and anticipated billings follow this same pattern. The actual and anticipated billings are as follows. Fourth Quarter Actual Billings First Quarter Anticipated Billings Oct. Nov. Dec. Jan. Feb. Mar. $392,000 $323,000 $296,000 $340,000 $360,000 $408,000

Explanation / Answer

Computation of the anticcipated cash flow for the 1st quarter.We have,

Collection: Jan. Feb. March Total 40% at the first month $ 136,000 $ 144,000 163,200 $ 443,200 30% at the second month 88,800 102,000 108,000 298,800 20% at the 3rd month 64,600 59,200 68,000 191,800 5% at the 4th month 19,600 16,150 14,800 50,550 Total anticipated cash collection $ 309,000 $ 321,350 $ 354,000 $ 984,350

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