Question

Bella, Inc. has completed it’s sales budget for the 3^rd quarter of 2017. Projected sales for the 3 months are as follows:

July: $30, 000

August: $100,000

September: $50,000

The company’s past records show collection 30% is paid in cash and 70% is paid in credit. Of the sales paid with credit, 10% is collected in the month of the sale and 90% is collected the following month.

a. What is the total expected cash collection for August?

b. What is the expected Accounts Receivable balance for September 30, 2017?

Answer 1

a.

Expected cash collection for August = Cash sale for August + 10% of Credit sales for august + 90% of credit sales for July

Cash sale for august = Total sale of august * 30% =$100,000 * 30% = $30,000

Credit sale for august = Total sale of august * 70% - $100,000 * 70% = $70,000

Credit sale for July = Total sale of july * 70% = $30,000 * 70% = $21,000

Total expected cash collection for August = $30,000 + ($70,000*10%) + ($21,000*90%) = $55,900

b.

Expected Accounts Receivable balance for September 30, 2017 = 90% of credit sale of September

Credit sale of september = 70% * Total sale of September = 70% * $50,000 = $35,000

Expected Accounts Receivable balance for September 30, 2017 = 90% * $35,000 = $31,500