Question

Cash Receipts Budget and Accounts Receivable Aging Schedule

Shalimar Company manufactures and sells industrial products. For next year, Shalimar has budgeted the following sales:

Quarter 1	$4,600,000
Quarter 2	5,100,000
Quarter 3	5,000,000
Quarter 4	7,600,000

In Shalimar’s experience, 10 percent of sales are paid in cash. Of the sales on account, 65 percent are collected in the quarter of sale, 25 percent are collected in the quarter following the sale, and 7 percent are collected in the second quarter after the sale. The remaining 3 percent are never collected. Total sales for the third quarter of the current year are $4,900,000 and for the fourth quarter of the current year are $6,850,000.

Required:

1. Calculate cash sales and credit sales expected in the last two quarters of the current year, and in each quarter of next year.

Quarter	Cash Sales	Credit Sales
3, current year	$	$
4, current year
1, next year
2, next year
3, next year
4, next year

2. Construct a cash receipts budget for Shalimar Company for each quarter of the next year, showing the cash sales and the cash collections from credit sales. If an amount is zero, enter "0".

Shalimar Company
Cash Receipts Budget
For the Coming Year
	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Cash sales	$	$	$	$
Received on account from:
Quarter 3, current year
Quarter 4, current year
Quarter 1, next year
Quarter 2, next year
Quarter 3, next year
Quarter 4, next year
Total cash receipts	$	$	$	$

3. What if the recession led Shalimar’s top management to assume that in the next year 10 percent of credit sales would never be collected? The expected payment percentages in the quarter of sale and the quarter after sale are assumed to be the same. How would that affect cash received in each quarter? Construct a revised cash budget using the new assumption.

Shalimar Company
Cash Receipts Budget
For the Coming Year
	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Cash sales	$	$	$	$
Received on account from:
Quarter 4, current year
Quarter 1, next year
Quarter 2, next year
Quarter 3, next year
Quarter 4, next year
Total cash receipts	$	$	$	$

Answer 1

Quarter	Cash Sales	Credit Sales	Total
3, current year	490,000	4,410,000	4,900,000
4, current year	685,000	6,165,000	6,850,000
1, next year	460,000	4,140,000	4,600,000
2, next year	510,000	4,590,000	5,100,000
3, next year	500,000	4,500,000	5,000,000
4, next year	760,000	6,840,000	7,600,000
Shalimar Company
Cash Receipts Budget
For the Coming Year
	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Cash sales	460,000	510,000	500,000	760,000
Received on account from:
Quarter 3, current year	308,700
Quarter 4, current year	1,541,250	431,550
Quarter 1, next year	2,691,000	1,035,000	289,800
Quarter 2, next year		2,983,500	1,147,500	321,300
Quarter 3, next year			2,925,000	1,125,000
Quarter 4, next year				4,446,000
Total cash receipts	5,000,950	4,960,050	4,862,300	6,652,300
3
Shalimar Company
Cash Receipts Budget
For the Coming Year
	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Cash sales	460,000	510,000	500,000	760,000
Received on account from:
Quarter 3, current year
Quarter 4, current year	1,541,250
Quarter 1, next year	2,691,000	1,035,000
Quarter 2, next year		2,983,500	1,147,500
Quarter 3, next year			2,925,000	1,125,000
Quarter 4, next year				4,446,000
Total cash receipts	4,692,250	4,528,500	4,572,500	6,331,000