Office World Inc. has "cash and carry" customers and credit customers. Office World estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 25% pay their accounts in the month of sale, while the remaining 75% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows:

October $700,000

November $65,000

December $500,000

The Accounts Receivable balance on September 30 was $290,000.

Required:

Prepare a schedule of cash collections from sales for October, November, and December.

Question

Business

Ingrid Jackson

6 December, 02:00

Office World Inc. has "cash and carry" customers and credit customers. Office World estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 25% pay their accounts in the month of sale, while the remaining 75% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows:

October $700,000

November $65,000

December $500,000

The Accounts Receivable balance on September 30 was $290,000.

Required:

Prepare a schedule of cash collections from sales for October, November, and December.

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Answers (1)

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Ahmad Stanton · Answer 1

Office World Inc.

Cash budget

Amount in $

October 469,375.00

November 422,187.50

December 255,312.5 0

Explanation:

The schedule of cash collections for each month will be as spelt out below; 25% of monthly sales, 25% * 75% of the monthly sales and 75% * 75% of the sales in the prior month.

Hence, Cash collection for

October

= 25% * $700,000 + 25% * 75% * $700,000 + 75% * 75% * $290,000

= $469,375

November

= 25% * $65,000 + 25% * 75% * $65,000 + 75% * 75% * $700,000

= $422,187.50

December

= 25% * $500,000 + 25% * 75% * $500,000 + 75% * 75% * $65,000

= $255,312.5 0