Question

It is November 1 of Year 1. Sales for Mark Company for November and December of Year 1 and January of Year 2 are forecasted to be as follows:

November, 300,000; December 700,000; January, 200,000

100% of sales are credit sales. Of these credit sales, 15% are collected during the month of sale, 25% in the following month, and 50% in the second following month; 10% are never collected. Total sales for September and October of Year 1 were 100,000 and 150,000, respectively.

What is the forecasted amount of total cash collections in November of Year 1?

Answer 1

Total Amount of Cash Collection during the Month of November will be calculated as follows

Collection of November Credit Sales in the Month of November = 15% of November Credit Sales

November Credit Sales = $ 300,000

Collection of November Credit Sales in the month of November = 15% of 300,000 = $ 45,000

Collection of October Credit Sales in the month of November = 25% of October Credit Sales

October Credit Sales = $ 150,000

Collection of October Credit Sales in the month of November = 25% of 150,000 = $ 37,500

Collection of September Credit Sales in the month of November = 50% of September Credit Sales

September Credit Sales = $ 100,000

Collection of September Credit Sales in the month of November = 50% of 100,000 = $ 50,000

Total Cash Collection forecast during November = 45,000 + 37,500 + 50,000

Total Cash Collection forecast during November of Year 1 = $ 132,500