Question

Cash Receipts
The sales budget for Perrier Inc. is forecasted as follows:

Month	Sales Revenue
May	$130,000
June	150,000
July	200,000
August	130,000

To prepare a cash budget, the company must determine the budgeted cash collections from sales. Historically, the following trend has been established regarding cash collection of sales:

• 60 percent in the month of sale.
• 20 percent in the month following sale.
• 15 percent in the second month following sale.
• 5 percent uncollectible.

The company gives a 2 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $22,000, of which $7,000 represents uncollected March sales and $15,000 represents uncollected April sales. Prepare a schedule of budgeted cash collections from sales for May, June, and July. Include a three-month summary of estimated cash collections.

Perrier, Inc. Schedule of Budgeted Cash Collections Quarterly by Months
	May	June	July	Total
Total Cash receipts:	$Answer	$Answer	$Answer	$Answer

Answer 1

Schedule of budgeted cash collections

	May	June	July	Total
Total cash receipts	89,190	119,825	167,100	376,115

Working note:

i) Uncollected march sales $7,000 will be collected in May. 60% of march sales would have been collected in the month of March and 20% in the month of April. Thus $7,000 represents remaining 20% of March sale.

Hence, march sales = 7,000 x 100/20

= $35,000

Since 5% is uncollectible, hence amount to be received in May = 35,000 x 15%

= $5,250

ii) Uncollected April sales = $15,000. 60% of April sales would have been collected in the month of April. Thus $15,000 represents remaining 40% of April sales.

Hence, April sales = 15,000 x 100/40

= $37,500

Amount to be received in May = 37,500 x 20%

= $7,500

Amount to be received in June = 37,500 x 15%

= $5,625

Cash collections from customers summary

	Sales/Accounts receivables	May	June	July
March	7,000	5,250	0	0
April	15,000	7,500	5,625	0
May	130,000	76,440	26,000	19,500
June	150,000	0	88,200	30,000
July	200,000	0	0	117,600
	Total	89,190	119,825	167,100