Question

Sales on account for the first two months of the current year are budgeted as follows:

Jan. $700,000
Feb. 750,000
All sales are made on terms of 2/10, n/30 (2% discount if paid in 10 days, full amount by 30 days); collections on accounts receivable are typically made as follows:
Collections within the month of sale:
Within discount period 60 %
After discount period 15
Collections within the month following sale:
Within discount period 15
After discount period 7
Returns, allowances, and uncollectible 3
Total 100 %
Compute the estimated cash collections on accounts receivable for the month of February.

Answer 1

$705,400

Step-by-step explanation:

Computation for the estimated cash collections on accounts receivable for the month of February.

January sales received in February:

Within discount period $102,900

[ (15%*$700,000) x 0.98]

After discount period $49,000

( 7%* $700,000)

February Sales received in February:

Within discount period $441,000

[(60% * $750,000) x 0.98]

After discount period $112,500

(15% of $750,000)

Estimated cash collections for February $705,400

($102,900+$49,000+$441,000+$112,500)

Therefore the estimated cash collections on accounts receivable for the month of February is $705,400