Accounts Receivable Collections and Sensitivity Analysis Doreen Company is preparing its cash budget for the month of May. The following information is available concerning its accounts receivable:
Actual credit sales for March | $120,000 |
Actual credit sales for April | $150,000 |
Estimated credit sales for May | $200,000 |
Estimated collections in the month of sale | 25% |
Estimated collections in the first month after the month of sale | 60% |
Estimated collections in the second month after the month of sale | 10% |
Estimated provision for bad debts made in the month of sale | 5% |
The firm writes off all uncollectible accounts at the end of the second month after the month of sale.
Required Create an Excel spreadsheet and determine for Doreen Company for the month of May:
1. The estimated cash receipts from accounts receivable collections.
2. The gross amount of accounts receivable at the end of the month.
3. The net amount of accounts receivable at the end of the month.
4. Recalculate requirements (1) and (2) under the assumption that estimated collections in month of sale = 60 percent and in first month following month of sale = 25 percent.
5. What are the benefits and likely costs of moving to the situation described above in (4)?
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