Question

The LaGrange Corporation had the following budgeted sales for the first half of the current year:

		Cash Sales		Credit Sales
January	$	50,000	$	150,000
February	$	55,000	$	170,000
March	$	43,000	$	130,000
April	$	38,000	$	123,000
May	$	48,000	$	200,000
June	$	80,000	$	170,000

The company is in the process of preparing a cash budget and must determine the expected cash  collections by month. To this end, the following information has been assembled:

Collections on sales: 

• 50% in month of sale
• 40% in month following sale
• 10% in second month following sale

The accounts receivable balance on January 1 of the current year was $65,000, of which $42,000  represents uncollected December sales and $23,000 represents uncollected November sales.

Required:

Prepare the total cash collection budget for January.

Please show process.

Answer 1

Cash collection budget

	January
Cash sales	$50,000
Credit sales :
50% of January credit sales	$75,000 ($150,000*50%)
40% of December credit sales	$33,600 ($42,000/50%*40%)
10% of November credit sales	$23,000 ($23,000/10%*10%)
Total cash collections	$181,600