Question

(i) D & F, Inc. expects sales of $620, $650, $730 and $780 for the months of April through July, respectively. The firm collects 20 percent of sales in the month of sale, 50 percent in the month following the month of sale and 28 percent in the second month following the month of sale. The remaining 2 percent of sales is never collected. How much money does the firm expect to collect in the month of July? (SHOW YOUR WORK)

(ii) On April 1st, ABD Co. had a beginning cash balance of $280. ABD’s sales are on credit only. Sales for March were $460 and April sales were $510. During April ABD had cash expenses of $130 and payments on accounts payable of $210. ABD’s accounts receivable period is 30 days. What is ABD’s beginning cash balance on May 1st?

Answer 1

Answer to i

Total Collection in the month of July is as below :-

Months	Sales (A)	2% of The sales are not Receivable         (B = 2% x A)	Net Realizable Sales (C = A -B)	Collection of 20 % in the month of Sale (D=A*20%)	Collection of 50 % in the month following the month of Sale (E=A*50%)	Derivation of E	Collection of 28 % in the 2nd month of Sale (F=A*28%)	Derivation of F	Total Collection (D+E+F)
April	620	12.4	607.6	124					124.00
May	650	13	637	130	310	April Sales x 50 %			440.00
June	730	14.6	715.4	146	325	May Sales x 50 %	173.60	April Sales x 28 %	644.60
July	780	15.6	764.4	156	365	June Sales x 50 %	182.00	May Sales x 28 %	703.00

Answer to ii

To compute the beginning balance of Cash we need to understand each and every cash inflow and outflow as stated. Moreover please note that the sales of the month of April will be realized in the month of May and therefore has not been considered while computing the beginning Cash balance for the month of April.

April 1 Cash Balance			280
Add :- Collection in April of the Sales in March		460
Less :- Cash Expense incurred in the month of April	130
Less :- Payment of Accounts Payables			210
Beginning Cash Balance as on 1st May	400

Therefore Opening Cash balance as on 1st May = $ 400