Question

Budgeted Cash Collections

In an effort to improve cash collection, Suburban Medical Clinic offers terms of 2/10, n/30, with a 5% discount on patient payments made with cash. Suburban estimates its total billings for the second calendar quarter of the year as follows: April, $400,000; May, $480,000; and June, $580,000. Historically, Suburban has had the following patient collection patterns:

	Portions of Total Sales
In month of sale:
Cash at time of sale	25%
On account during the discount period	20%
On account after the discount period	10%
In month following sale:
On account after the discount period	25%
In second month following sale:
On account after discount period	15%
Average portion uncollectible	5%
	100%

What would be Suburban’s budgeted total cash collections for June?

$Answer

Answer 1

Calculation of Budgeted Total Cash Collections for June (Amounts in $)

Cash Sales for June (580,000*25%)	145,000
Discount Allowed (145,000*5%)	(7,250)
Cash collected for cash sales		137,750
Credit Sales collected during the discount period (580,000*20%)	116,000
Discount allowed (116,000*2%)	(2,320)
Net cash collected		113,680
Credit Sales collected after the discount period (580,000*10%)		58,000
Cash collected for May Sales (480,000*25%)		120,000
Cash collected for April Sales (400,000*15%)		60,000
Budgeted Total Cash Collections for June		489,430

Therefore Suburban’s budgeted total cash collections for June is $489,430.

Working Notes:-

a) The sales on account collected during the discount period is after allowing 2% discount on sales amount. No discount is allowed in the sales collected after discount period.