Question

Carmen’s Dress Delivery operates a mail-order business that sells clothes designed for frequent travelers. It had sales of $610,000 in December. Because Carmen’s Dress Delivery is in the mail-order business, all sales are made on account. The company expects a 21 percent drop in sales for January. The balance in the Accounts Receivable account on December 31 was $97,800 and is budgeted to be $72,400 as of January 31.

Required

1. Determine the amount of cash Carmen’s Dress Delivery expects to collect from accounts receivable during January.

Answer 1

Expected sales on January = 610,000 x 79%

Expected sales on January = $ 481,900

Beginning balance on accounts receivable = $ 97,800

Ending balance in accounts receivable = $ 72,400.

Ending balance = Beginning balance + All credit sales - Cash collected.

72,400 = 97,800 + 481,900 - Cash collected.

72,400 = 579,700 - cash collected.

Cash collected = 579,700 - 72,400

Cash collected = $ 507,300.

Hence, $ 507,300 is the correct answer.

SUMMARY:

$ 507,300 is the correct answer.