Question

Lee Verly will be opening his company called LV Catering in January of the next year. He predicts that January, February and March will generate $110,000, $100,000 and $145,000 worth of sales respectively. The company expects to sell 25% of its products for cash. Of the sales on account, 50% 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. Prepare the cash receipts section of the cash budget.

Answer 1

To prepare the cash receipts section of the cash budget for LV Catering, we need to calculate the cash receipts for each month based on the given information. The total cash receipts for the three months are $151,681.25.

Step-by-step explanation:

To prepare the cash receipts section of the cash budget for LV Catering, we need to calculate the cash receipts for each month based on the given information. Here are the steps:

1. January cash receipts: $110,000 x 25% = $27,500
2. February cash receipts: $100,000 x 25% = $25,000
3. March cash receipts: $145,000 x 25% = $36,250
4. January accounts receivable: ($110,000 - $27,500) x 50% = $41,250
5. February accounts receivable: ($100,000 - $25,000) x 50% = $37,500
6. March accounts receivable: ($145,000 - $36,250) x 50% = $54,375
7. January collections: $41,250 x 25% = $10,312.50
8. February collections: $37,500 x 25% = $9,375
9. March collections: $54,375 x 25% = $13,593.75
10. February collections from January: $41,250 x 25% = $10,312.50
11. March collections from January and February: ($41,250 + $37,500) x 25% = $19,687.50
12. Total cash receipts: $27,500 + $25,000 + $36,250 + $10,312.50 + $9,375 + $13,593.75 + $10,312.50 + $19,687.50 = $151,681.25