Question

Pet Supplies Inc., a pet wholesale supplier, was organized on January 1. Projected sales for each of the first three months of operations are as follows: January $300,000 February 500,000 March 750,000 All sales are on account. Seventy-five percent of sales are expected to be collected in the month of the sale, 20% in the month following the sale, and the remainder in the second month following the sale. Prepare a schedule indicating cash collections from sales for January, February, and March. Enter all amounts as positive numbers.

Answer 1

January = $225,000

February = $435,000

March = $677,500

Step-by-step explanation:

Use the collection policy given to guide your calculations for cash collection.

Month`s Collection = 75 % of Current Month`s Sale + 20 % of Previous Month`s Sale + 5 % of Second Previous Month` Sales

Therefore cash collections for January, February, and March will be :

January = $300,000 x 75 % = $225,000

February = $500,000 x 75 % + $300,000 x 20% = $435,000

March = $750,000 x 75 % + $500,000 x 20 % + $300,000 x 5 % = $677,500

A schedule indicating cash collections from sales for January, February, and March will indicate the following Total Collections :

January = $225,000

February = $435,000

March = $677,500