Question

The sales budget for Perrier Inc. is forecasted as follows:

Month Sales Revenue
May $130,000
June 150,000
July 200,000
August 130,000

To prepare a cash budget, the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales: 60 percent in the month of sale. 20 percent in the month following sale. 15 percent in the second month following sale.

5 percent uncollectible.
60 percent in the month of sale.
20 percent in the month following sale.
15 percent in the second month following sale.

The company gives a 2 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $22,000, of which $7,000 represents uncollected March sales and $15,000 represents uncollected April sales. Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.

Answer 1

budgeted cash collections

May June July

sales revenue 130,000 150,000 200,000

cash sales (60% x 0.98) 76,440 88,200 117,600

accounts receivable (March) 5,250

accounts receivable (April) 7,500 5,625

accounts receivable (May) 26,000 19,500

accounts receivable (June) 30,000

total cash collections 219,190 269,825 367,100

I used net accounts receivables, that means I already discounted the 5% of collectibles.