Question

Sales on account for the first two months of the current year are budgeted as follows.

  

January	$	301,000
February		475,000

  

All sales are made on terms of 2/10, n/30 (2 percent discount if paid in 10 days, full amount by 30 days); collections on accounts receivable are typically made as follows.

  

Collections within the month of sale:
Within discount period	60	%
After discount period	15
Collections within the month following sale:
Within discount period	15
After discount period	7
Returns, allowances, and uncollectibles	3
Total	100	%

Compute the estimated cash collections on accounts receivable for the month of February.

Answer 1

Answer:

$415,867

Step by Step Explanation:

February collections are:

February sales on account:

Within discount period = 475,000 x 0.6 = 285,000 - (285,000 x 0.02) = 279,300

After discount period = 475,000 x 0.15 = 71,250

January sales on account:

Within discount period = 301,000 x 15% = 45,150 - (45,150 x 2%) = 44,247

After discount period = 301,000 x 7% = 21,070

Total estimated cash collections = $415,867