Question

A company is preparing its cash budget for next year. The accounts receivable at the beginning of next year are expected to be £240,000. The budgeted sales are £3,000,000 and will occur evenly throughout the year. 75% of the budgeted sales will be cash and the remainder will be on credit. Credit customers pay in the month following sale. The budgeted total cash receipts from customers next year are:

Answer 1

Credit customers pay in the month following sale.

So for next year budgeted total cash receipts will be sales from last month's sales.

Sales in a single month =  budgeted sale in a year / 12 =  £3,000,000 / 12 = £ 250,000

Now Credit given = 100 - % cash Sale = 100 % - 75% = 25% of Sales

Value of Credit given = Credit Sales * Sales in a single month = 25% * 250,000 = £ 62,500

total cash receipts from customers in Upcoming Year

= (Total Sales - Value of Credit given) + accounts receivable at the beginning

= ( £3,000,000 -  £ 62,500) + £240,000

= £ 3177,500 (Ans)