Question

Towing Company has budgeted sales for the next six months as follows: Sales for Cash Sales on Account May $42,000 $257,000 June $37,000 $243,000 July $29,000 $238,000 August $48,000 $251,000 September $52,000 $269,000 October $45,000 $263,000 On average, 32% of the sales on account are collected in the month of sale, 40% are collected in the month following sale, 16% are collected in the second month following sale, 9% are collected in the third month following sale, and the remaining 3% is collected four months after the month of sale. Calculate Towing Company's budgeted accounts receivable at October 31.

Answer 1

Answer:

We have considered 1st amount as Cash sales and latter one is Credit sales :

Month	Cash Sales	Credit Sales
May	$       42,000	$   2,57,000
June	$       37,000	$   2,43,000
July	$       29,000	$   2,38,000
August	$       48,000	$   2,51,000
September	$       52,000	$   2,69,000
October	$       45,000	$   2,63,000
TOTAL	$   2,53,000	$ 15,21,000

Cash sales will not have any effect on account receivable as cash sales amount received immediately.

In order to know accounts receivables at October 31, we need to prepare cash collection as follows:

Schedule of expected cash collection
Month	Total Credit Sales	In May		In June		In July		In August		In September		In October		Total Collections
		in %	in $	in %	in $	in %	in $	in %	in $	in %	in $	in %	in $
May Sales	$                         2,57,000	32%	$       82,240	40%	$   1,02,800	16%	$       41,120	9%	$     23,130	3%	$       7,710		$              -	$             2,57,000
June Sales	$                         2,43,000		$                -	32%	$       77,760	40%	$       97,200	16%	$     38,880	9%	$     21,870	3%	$       7,290	$             2,43,000
July Sales	$                         2,38,000		$                -		$                -	32%	$       76,160	40%	$     95,200	16%	$     38,080	9%	$     21,420	$             2,30,860
August Sales	$                         2,51,000		$                -		$                -		$                -	32%	$     80,320	40%	$ 1,00,400	16%	$     40,160	$             2,20,880
September Sales	$                         2,69,000		$                -		$                -		$                -		$              -	32%	$     86,080	40%	$ 1,07,600	$             1,93,680
October Sales	$                         2,63,000		$                -		$                -		$                -		$              -		$              -	32%	$     84,160	$                 84,160
Total Cash Collections	$                       15,21,000		$       82,240		$   1,80,560		$   2,14,480		$ 2,37,530		$ 2,54,140		$ 2,60,630	$           12,29,580

Referring to above table,Towing Company's budgeted accounts receivable at October 31 is follows:

Month	Total Credit Sales	Total Collections	Accounts Receivables
				(i)	(ii)	[ (i) - (ii) ]
	May Sales	$                2,57,000	$              2,57,000	$                    -
June Sales	$                2,43,000	$              2,43,000	$                    -
July Sales	$                2,38,000	$              2,30,860	$             7,140
August Sales	$                2,51,000	$              2,20,880	$           30,120
September Sales	$                2,69,000	$              1,93,680	$           75,320
October Sales	$                2,63,000	$                  84,160	$       1,78,840
TOTAL ACCOUNTS RECEIVABLES			$       2,91,420