Question

Ed’s Waterbeds has made the following sales projections for the next six months. All sales are credit sales.

March	$	32,000	June	$	36,000
April		38,000	July		44,000
May		27,000	August		46,000

Sales in January and February were $35,000 and $34,000 respectively.

Experience has shown that 10 percent of total sales are uncollectible, 30 percent are collected in the month of sale, 40 percent are collected in the following month, and 20 percent are collected two months after sale.

a. Prepare a monthly cash receipts schedule for the firm for March through August.

Ed’s Waterbeds Cash Receipts Schedule

January

February

March

April

May

June

July

August

Sales

$

$

$

$

$

$

$

$

Collections of current sales

Collections of prior month's sales

Collections of sales 2 months earlier

Total cash receipts

$

$

$

$

$

$

b. Of the sales expected to be made during the six months from March to August, how much will still be uncollected at the end of August? How much of this is expected to be collected later?

	Amount
Uncollected	$
Expected to be collected	$

Answer 1

A)Ed's Waterbeds

Monthly cash receipts schedule for the firm from March to August

	March	April	May	June	July	August
Sales	$32,000	$38,000	$27,000	$36,000	$44,000	$46,000
Collection of current sales (30%)	30%×$32,000 =$9,600	30%×$38,000 =$11,400	30%×$27,000 =$8,100	30%×$36,000 =$10,800	30%×$44,000 =$13,200	30%×$46,000 =$13,800
Collection of prior months sales 40%	40% of feb 40%×$34,000 =$13,600	40%of March 40%×$32,000 =$12,800	40% of April 40%×$38,000 =$15,200	40% of May 40%×$27,000 =$10,800	40% of June 40%×$36,000 =$14,400	40% of July 40%×$44,000 =$17,600
Collection of sale 2month earlier (20%)	20% of Jan 20%×$35,000 =$7,000	20% of feb 20%×$34,000 =$6,800	20% of March 20%×$32,000 =$6,400	20% of April 20%×$38,000 =$7,600	20% of May 20%×$27,000 =$5,400	20% of June 20%×$36,000 =$7,200
Total Cash Receipts	$30,200	$31,000	$29,700	$29,200	$33,000	$38,600

B)

Uncollected sales
March 10%×$32,000	3,200
April 10%×$38,000	3,800
May 10%×$27,000	2,700
June 10%×$36,000	3,600
July 10%×$44,000	4,400
August 10%×$46,000	4,600
Total uncollected sales	$22,300
Expected to be collected later
August (40%×$46,000+20%×$46,000) =$18,400+$9,200	$27,600
July (20%×$44,000)	$8,800
	$36,400