Question

experienced the following collec aber Corporation Learning was found that bectve 3) t all my en moet wee s , while the we es of the creates the 25% received in the month of the sale 50% received in the month after the sale 18% received two months after the sale 7% of the credit sales are never received November sales for last year were $85,000, while December sales were $120,000. Projected sales for the next three months was follows. January sales. $170,000 February sales. $125,000 $185,000 March sales. Requirement Prepare a cash collections budget for the first quarter, with a column for each month and for the quarter.

Answer 1

	January	February	March	Quarter
Cash Sales                              [Refer working note 1]	$68,000	$50,000	$74,000	$192,000
Collections on credit sales:
25% month of sale            [Refer working note 2]	$25,500	$18,750	$27,750	$72,000
50% month of sale            [Refer working note 3]	$36,000	$51,000	$37,500	$124,500
18% two month after        [Refer working note 4]	$9,180	$12,960	$18,360	$40,500
Total Cash Collections	$138,680	$132,710	$157,610	$429,000

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Working note 1 - Computation of cash sales during each month of 1st quarter
	January	February	March
Total sales                                                              (a)	$170,000	$125,000	$185,000
% of cash sales          [100% - 60%]                      (b)	40%	40%	40%
Cash collections from cash sales                      (a x b)	$68,000	$50,000	$74,000

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Working note 2 -In the month of sale
	January	February	March
Total sales                                                                                          (a)	$170,000	$125,000	$185,000
% of credit sales received in the month of sale    [60% x 25%]          (b)	15%	15%	15%
Cash collections from cash sales                                                   (a x b)	$25,500	$18,750	$27,750

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Working note 3 - In the month after the sale
	January	February	March
December sales collected in January      [Credit sales x 50%]      [$120,000 x 60% x 50%]	$36,000
January sales collected in February    [Credit sales x 50%]      [$170,000 x 60% x 50%]		$51,000
February sales collected in March       [Credit sales x 50%]      [$125,000 x 60% x 50%]			$37,500

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Working note 4 - Two months after the sale
	January	February	March
November sales collected in January      [Credit sales x 18%]      [$85,000 x 60% x 18%]	$9,180
December sales collected in February    [Credit sales x 18%]      [$110,000 x 60% x 18%]		$12,960
January sales collected in February       [Credit sales x 18%]      [$170,000 x 60% x 18%]			$18,360

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