Question

Macaulay Corporation was reviewing its cash budget starting with September 1 of the current year. Budgeted cash and credit sales for the last four months of business during the year are $250,000 for September, $300,000 for October, $420,000 for November, and $540,000 for December. The company expects to sell 20% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month of the sale, 25% in the month following the sale, and the remainder in the following month. Industry benchmarks suggest that it would be prudent to make a “bad debt” provision for credit sales to the tune of 2% after the 3 rd month following credit sales.

Develop a schedule showing cash collections only from accounts receivable, net of expected bad debts, in the month of December.

Answer 1

Collection $ 302,400 Cash collections in the month of December :- Particulars Amount S Credit sales of December month 432,000 (540000*80%) Collection : Out of December month credit sale (432000*70%) Out of November month credit sale (420000*80%-25%) Out of October month credit sale (300000*80%+5%) Total collection in the month of December Less: Bad debt provision For September sales (250000*80%*29) Cash collection net of expected bad debts 84,000 12,000 398,400 4,000 394,400