Question

	January			February			March
Sales budget	$	202,000		$	222,000		$	245,000

  

Credit sales are collected as follows:
  
60 percent in the month of the sale.
30 percent in the month after the sale.
10 percent in the second month after the sale.
  
The accounts receivable balance at the end of the previous quarter was $86,000 ($56,000 of which was uncollected December sales).
  
a. Calculate the sales for November. (Do not round intermediate calculations and round your answer to the nearest whole dollar, e.g., 32.)
  
November sales           $  
  
b. Calculate the sales for December. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
December sales           $  
  
c. Calculate the cash collections from sales for each month from January through March. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
   

	Cash collections
January	$
February	$
March	$

Answer 1

The accounts receivable balance at the end of previous quarter that is December was $86,000

Out of $86,000, $56,000 was of uncollected December Sales

Now, uncollected December sales would have been (1 – 0.60) = 0.40 times of Total sales of December as 60% is already collected in the month of December

So, 0.40 x Total Sales of December = $56,000

So, Total Sales of December = $56,000 / 0.40

= $140,000

Now, 60% of the Sales for the month of November would have been collected in the month of November and 30% in the month of December. So, balance 10% is still remaining at the month of December

So, 0.10 x Total Sales of November = ($86,000 - $56,000)

So, Total Sales of November = $30,000 / 0.10

= $300,000

Cash collections chart is shown below

Calculations	Particulars	November	December	January	February	March
A	Sales	300000	140000	202000	222000	245000
B = A x 60%	Collection in month of Sale	180000	84000	121200	133200	147000
C = A of previous month x 30%	Collections in second month		90000	42000	60600	66600
D = A two months back x 10%	Collections in third Month			30000	14000	20200
E = B+C+D of Jan to Mar	Total collections of Jan to Mar			193200	207800	233800