Question

Towing Company has budgeted sales for the next six months as follows:

                   Sales for Cash     Sales on Account 
May                   $42,000             $257,000
June                  $37,000             $243,000
July                  $29,000             $238,000
August                $48,000             $251,000
September             $52,000             $269,000
October               $45,000             $263,000

On average, 32% of the sales on account are collected in the month of
sale, 40% are collected in the month following sale, 16% are collected
in the second month following sale, 9% are collected in the third month
following sale, and the remaining 3% is collected four months after the
month of sale.

A)Calculate Towing Company's budgeted cash collections for September.

B) Calculate Towing Company's budgeted accounts receivable at October 31.

Answer 1

a.

Cash sales	52,000
From May credit sale (257,000 x 3%)	7,710
From June credit sales (243,000 x 9%)	21,870
From July credit sales (238,000 x 16%)	38,080
From August credit sales (251,000 x 40%)	100,400
From September credit sales (269,000 x 32%	86,080
Total cash collection from September	$306,140

b.

Accounts receivable on Oct 31 = 68% of October credit sales + 28% of September credit sales + 12% of August credit sales + 3% of July credit sales

= 263,000 x 68% + 269,000 x 28% + 251,000 x 12% + 238,000 x 3%

= 178,840 + 75,320 + 30,120 + 7,140

= $291,420

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