Question

Sales on account for the first two months of the current year are budgeted as follows. January $ 239,000 February 729,000 All sales are made on terms of 2/10, n/30 (2 percent discount if paid in 10 days, full amount by 30 days); collections on accounts receivable are typically made as follows:

Collections within the month of sale:
Within discount period	60	%
After discount period	15
Collections within the month following sale:
Within discount period	15
After discount period	7
Returns, allowances, and uncollectibles	3
Total	100	%

Compute the estimated cash collections on accounts receivable for the month of February.

Answer 1

Collections (February)
Within month of sale
Within Discount period	$          4,28,652	=729000*60%*98%
After discount period	$          1,09,350	=729000*15%
Within month following sale
Within Discount period	$             35,133	=239000*15%*98%
After discount period	$             16,730	=239000*7%
Total Collections	$         5,89,865

Within Discount period, there is 2% discount, therefore collection for the same is 98%