Question

Papst Company is preparing its cash budget for the month of May. The following information is available concerning its accounts receivable (based on sales made to customers on open account):

Actual credit sales for March	$	185,000
Actual credit sales for April	$	237,000
Estimated credit sales for May	$	342,000
Estimated collections in the month of sale		25	%
Estimated collections in the first month after the month of sale		60	%
Estimated collections in the second month after the month of sale		10	%
Estimated provision for bad debts (made in the month of sale)		5	%

The firm writes off all uncollectible accounts at the end of the second month after the month of sale.

Required:

Determine for Papst Company for the month of May:

1. The estimated cash receipts from accounts receivable collections.

2. The gross amount of accounts receivable at the end of the month (after appropriate write-off of uncollectible accounts).

3. The net amount of accounts receivable at the end of the month.

4. Recalculate requirements 1 and 2 under the assumption that estimated collections in the month of sale equal 60% and in the first month following the month of sale equal 25%.

Answer 1

Calculation of cash receipts from sales -Collected in- May-30 May-30 April May Gross Accounts receivable Bad written Off C D FEA-(B+C+D) E Total sales A Uncollectable March L B May-30 Net Accounts receivable G=F-E Credit sales from March $ 185,000 9,250 $ - $ 9,250 $ 46,250 (185000*25%) $ - April $ 237,000 $ 111,000 (185000*60% 59,250 (237000*25%) - 35,550 $ $ $ 9,250 (185000*5% $ 11.850 (237000*5%) $ 17,100 (342000*5%) 35,550 $ 18,500 $ (185000*10%) $ 142,200 $ (237000*60%) $ 85,500 $ (342000*25%) $ 246,200 $ May $ 342,000 $ 256,500 $ 9,250 $ 247.250 Total $ 764,000 $ 46,250 $ 170,250 301,300 $ 9,250 $ 292,050 1 Estimated Cash receipts from sale 2 Gross accounts receivables 3 Net accounts receivables March $ 46,250 $ 9,250 $ 9,250 $ $ $ April 170,250 $ 35,550 $ 35,550 $ May 246,200 256,500 247,250

Calculation of cash receipts from sales -Collected in- May-30 May-30 April May Gross Accounts receivable Bad written Off C D FEA-(B+C+D) E Total sales A Uncollectable March L B May-30 Net Accounts receivable G=F-E Credit sales from March 9,250 $ - $ 9,250 $ 111,000 (185000*60% $ April 35,550 $ $ 35,550 $ 185,000 $ 9,250 (185000*5% $ 237,000 $ 11.850 (237000*5%) $ 342,000 $ 17,100 (342000*5% $ 764,000 $ 46,250 $ 18,500 $ (185000*25%) (185000*10%) $ 142,200 $ 59,250 $ (237000*60%) (237000*25%) $ - $ 205,200 $ (342000*60%) $ 188,450 $ 282,950 $ May $ - 136,800 $ 9,250 $ 127,550 Total $ 111,000 181,600 $ 9,250 $ 172,350 Estimated Cash receipts from sale Gross accounts receivables Net accounts receivables March $ 111,000 $ 9,250 $ 9,250 $ $ $ April 188,450 35,550 35,550 $ $ $ May 282,950 136,800 127,550