Question

Alpha Company is preparing its cash budget for the month of May. The company estimated credit sales for May at $200,000. Actual credit sales for April were $150,000. Estimated collections in May for credit sales in May are 20%. Estimated collections in May for credit sales in April are 70%. Estimated Collections in May for credit sales prior to April are $12,000. Estimated write-offs in May for uncollectible credit sales are $8,000. Estimated provision for bad debts in May for credit sales in May are $7,000. What are the estimated cash receipts from accounts receivable collections in May?

Answer 1

$157,000

Step-by-step explanation:

The calculation of estimated cash receipts from accounts receivable collections in May is shown below:-

Collections from sales of may = $200,000 × 20%

= $40,000

Collections from sales of April = $150,000 × 70%

= $105,000

Collections from sales of prior period = $12,000

Estimated Collections in May month = Collections from sales of may + Collections from sales of April + Collections from sales of prior period

= $40,000 + $105,000 + $12,000

= $157,000

So, for computing the estimated collection in may month we simply applied the above formula.