Question

The Overland Company is preparing its cash budget for the month of June. The following information is available concerning its accounts receivable:

  

Estimated credit sales for June	$	334,000
Actual credit sales for May		259,000
Estimated collections in June for credit sales in June		25	%
Estimated collections in June for credit sales in May		65	%
Estimated collections in June for credit sales prior to May	$	52,000
Estimated write-offs in June for uncollectible credit sales		46,000
Estimated provision for bad debts in June for credit sales in June		44,000

What are the estimated cash receipts from accounts receivable collections in June?

Answer 1

Calculation of estimated cash receipts from accounts receivable collections in June

Collections in June for credit sales in June = 25% of 334000 = $83,500

Collections in June for credit sales in May = 65% of 259000 = $168,350

Collections in June for credit sales prior to May = $ 52,000

Estimated cash receipts from accounts receivable collections in June = 83500+168350+52000 = $303,850

Note: Writing off uncollectible credit sales and provision for bad debts in June for credit sales in June will not have any impact on cash collection for the month of June. However it will reduce the balance of receivables which will lead to lesser collection in