Question

Sales on account for the first two months of the current year are budgeted as follows.

  

January	$	980,000
February		342,000

  

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

Answer:

estimated cash collections on accounts receivable for the month of February=$465,056

Working notes for the above answer is as under

January in the discount period

$980,000 X 15% X .98

= 980,000 x 0.15x0.98

= 147,000 x 0.98

= 144060

After discount period

$980,000 X 7%

= 980,000x0.07

= 68,600

February in the discount period

342,000 X 60% X .98

= 342,000x 0.60 x0.98

= 205,200 x 0.98

= 201096

After discount period

342,000 X 15%

= 342,000 x 0.15

=51,300

Total estimated cash collections for February

=144060+68600+201096+51300

=$465,056