Question

East Company budgeted the following credit sales during the current year: August $90,000 September, $100,000; October, $108,000; November, $80,000; December, $100,000. Experience has shown that cash from credit sales is received as follows: 10% in the month of sale, 60% in the first month after sale, 26% in the second month after sale, and 4% is uncollectible. All collections in the month of sale are subject to 1 percent cash discount.

Required:

How much total cash can East Company expect to collect in October?

Answer 1

	Schedule of expected cash collections
		August	September	October	November	December
	Credit Sales	$           90,000	$       1,00,000	$             1,08,000	$           80,000	$       1,00,000
(i)	10% in the month of sale	$             9,000	$           10,000	$                 10,800	$             8,000	$           10,000
(ii)	60% next month of sale		$           54,000	$                 60,000	$           64,800	$           48,000
(iii)	26% two months after sale			$                 23,400	$           26,000	$           28,080
	4% uncollected	$             3,600	$             4,000	$                   4,320	$             3,200	$             4,000
(iv)	1% Cash discount	$                 -90	$               -100	$                     -108	$                 -80	$               -100
(i) + (ii) + (iii) - (iv)	Total cash collected	$             8,910	$           63,900	$                 94,092	$           98,720	$           85,980
	Therefore, Expected cash to be collected in the month of October is $94,092