Question

Norman Corp. has prepared the sales budget.

The expected sales are as follows: $84,000 for March, $100,000 for April, $92,000 for May, $116,000 for June, and $98,000 for July.

Credit sales are 80% of total sales, and cash sales are remaining 20%. Collections of account receivables are 80% in the month of sale (and subject to 1% discount), 15% in the month following the sale. The remaining 5% is expected to be uncollectible.

(a) Prepare a schedule of cash collections for April through June.

(b) What is the ending accounts receivable balance on May 31?

Answer 1

Answer:

(a)

Month	Sales	Cash Sales (20% of Sales)	Credit sales(Sales-Cash sales)	Same month realisation(80% of Credit sales less 1% discount)	Prevoius month credit sales realisation(15% of credit sales)	Bad debts(5% of credit sales)	Total Cash Received(C+E+F)
March	84,000	16,800	67,200	53,222.4	0	3,360	70,022.4
April	100,000	20,000	80,000	63,360	10,080	4,000	93,440
May	92,000	18,400	73,600	58,291.2	1,2000	3,680	88,691.2
June	116,000	23,200	92,800	73,497.6	11,040	4,640	107,737.6
July	98,000	19,600	78,400	62,092.8	13,920	3,920	95,612.8

(b)

Ending accounts receivables on may 31=

Receivables=$11,040 (15% of credit sales that will be collected in the next month)

Allowance for doubtful debts=$11,040 (Since it is mentioned that 5% are expected uncollectibles and actual bad debts have not been occured thus allowance=3360+4000+3680)

Net receivables=11040-11040=$0 (NIL)

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