Question

​Thornton, Inc. has budgeted sales for the months of September and October at $306,000 and $268,000​,...

​Thornton, Inc. has budgeted sales for the months of September and October at $306,000 and $268,000​, respectively. Monthly sales are 80​% credit and 20​% cash. Of the credit​ sales, 50​% are collected in the month of​ sale, and 50​% are collected in the following month. Calculate cash collections for the month of October.

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Answer #1

Cash collections for the month of October = 20% of October sales + 50% of credit sales in October + 50% of credit sales in September

Credit sales in October = 80% of October sales = 80% of $268,000 = $214,400

Credit sales in September = 80% of September sales = 80% of $306,000 = $244,800

20% of October sales = 20% of $268,000 = $53,600

50% of credit sales in October = 50% of $214,400 = $107,200

50% of credit sales in September realised in October = 50% of $244,800 = $122,400

Cash collections for the month of October = 20% of October sales + 50% of credit sales in October + 50% of credit sales in September = $53,600 + $107,200 + $122,400 = $283,200.

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