Question

Office World Inc. has "cash and carry" customers and credit customers. Office World estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 25% pay their accounts in the month of sale, while the remaining 75% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows:

August $109,000
September $136,000
October $199,000

The Accounts Receivable balance on July 31, 2016, was $73,000.
Required:
Prepare a schedule of cash collections from sales for August, September, and October. Round all calculations to the nearest whole dollar.

Answer 1

Answer and Explanation:

The preparation of schedule a cash collections from sales for August, September, and October is shown below:-

Office World inc.

Schedule for collections from sales

For the Three Months Ending October 31, 2016

August September October

Receipts from cash sales:

Cash sales (25%) $27,250 $34,000 $49,750

Collected in August $73,000

August sales on account:

Collected in August

($109,000 × 75% × 25%) $42,510

Collected in September $61,313

($109,000 × 75% × 75%)

September sales on account:

Collected in September $25,500

($136,000 × 75% × 25%)

Collected in October $76,500

($136,000 × 75% × 75%)

October sales on account:

Collected in October $37,313

($199,000 × 75% × 25%)

Total cash receipts $142,760 $120,813 $163,563