Question

The Gardner Company expects sales for October of $248,000. Experience suggests that 45% of sales are for cash and 55% are on credit. The company collects 50% of its credit sales in the month of sale and 50% in the month following sale. Budgeted Accounts Receivable on September 30 is $67,000. What is the amount of cash expected to be collected in October?

Answer 1

$198,225

Step-by-step explanation:

The amount of cash expected is a function of sales in 2 months.

Given that the company collects 50% of its credit sales in the month of sale and 50% in the month following sale, cash collection for October will include 45% sales in October, 50% of 55% sales in October and 50% of 55% sales in September. The 50% of 55% sales in September represents the accounts receivable balance for the month.

Hence October cash collection expected

= (45% × $248,000) + (50% × 55% × $248,000) + (50% × 55% × $67,000)

This is on the assumption that the balance in accounts receivable as at 30 September has been adjusted for the 50% of credit sales collectible in the month of sale

October cash collection expected

= $198,225

Answer 2

Total Cash Collections for October $ 246,800

Step-by-step explanation:

The Gardner Company

Expected sales for October $248,000

Cash sales for October $248,000* 45%= $ 111600

Credit sales for October $248,000*55%= $ 136,400

Expected Accounts Receivable for credit Sales Of October = $ 136,400*50 %

= $ 68,200

Budgeted Accounts Receivable on September 30 is $67,000

So the same will be for October i.e $ 67,000

The total cash collected in October would be =Cash Sales in October + Cash for Credit Sales in October + Cash for credit sales in September

Total Cash Collections for October= $ 111600+$ 68,200+$67,000=$ 246,800