Question

Budgeted Cash Collections, Budgeted Cash Payments Historically, Ragman Company has had no significant bad debt experience with its customers. Cash sales have accounted for 20 percent of total sales, and payments for credit sales have been received as follows: 40 percent of credit sales in the month of the sale 35 percent of credit sales in the first subsequent month 20 percent of credit sales in the second subsequent month 5 percent of credit sales in the third subsequent month The forecast for both cash and credit sales is as follows January February March April $185,000 181,000 193,000 195,000 200,000 May Required: 1. What is the forecasted cash inflow for Ragman Company for May? 2. Due to deteriorating economic conditions, Ragman Company has now decided that its cash forecast should include a bad debt adjustment of 2 percent of credit beginning with sales for the month of April. Because of this policy change, what will happen to the total expected cash flow related to as made to add Cash will

Answer 1

1) Forcasted cash inflow
from cash sale (200000*20%)					40000
from feb sale (181000*80%*5%)					7240
from march sale (193000*80%*20%)					30880
from april sale (195000*80%*35%)					54600
from may sale (200000*80%*40%)					64000
total forcasted cash inflow					196720
2) april month sale = 195000
cash sale (195000*20%) =			39000
credit sale (195000*80%)			156000
bad debts 2% of credit sale (156000*2%)			3120
Cash will be decrease by 3120