Question

During the first and second months it expects credit sales of $42,000 and $68,000, respectively. The company expects to collect 60% of its credit sales in the month of the sale, 35% in the following month, and 5% is deemed uncollectible. What amount of cash collections from credit sales would the company include in its cash budget for the second month

Answer 1

Answer: $55,000

Step-by-step explanation:

In the second month, the company should expect to collect 35% of the credit sales from the first month and 60% of the credit sales from the second month as is normally expected.

Calculating this therefore would be,

= (0.35* 42,000) + (0.6 * 68,000)

= $55,000

$55,000 is the cash collections from credit sales the company would include in its cash budget for the second month.