Question

4. (i) D & F, Inc. expects sales of $620, $650, $730 and $780 for the months of April through July, respectively. The firm collects 25 percent of sales in the month of sale, 55 percent in the month following the month of sale and 17 percent in the second month following the month of sale. The remaining 3 percent of sales is never collected. How much money does the firm expect to collect in the month of July? (SHOW YOUR WORK)

(ii) On April 1^st, ABD Co. had a beginning cash balance of $250. ABD’s sales are on credit only. Sales for March were $450 and April sales were $610. During April ABD had cash expenses of $180 and payments on accounts payable of $240. ABD’s accounts receivable period is 30 days. What is ABD’s beginning cash balance on May 1^st?

Answer 1

Answer : (i) Calculation of Money the firm expect to collect in july.

From Sale of July (i.e the month of sale) = 780 * 25% = $195

From Sale ofJune (i.e Month following july) = $730 * 55% = $401.50

From Sale of May (i.e 2 month following July) = $650 * 17% = $110.50

Total Amount which the firm expect to collect in July = $195 + $401.50 +$110.50

= $707

(ii) Calculation of Cash Balance in the beginning of May 1st or 30th April

Below is the table showing Balance of Cash on May 1st

Beginning Cash Balance	Given	$250
(+) Collection fro receivables	As Accounts receivable period is 30 days the amount of sale in march is collected in April	$450
(-)Cash Expnses	Given	($180)
(-)Payment to Accounts Payable	Given	($240)
Balance as on 30th April or 1st May		$280