Question

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

  

January	$	374,000
February		580,000

  

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

Calculation of estimated cash collections on account receivables for the month of February:
January
Collection with the month of sale:
Within discount period	$3,74,000 X 60% X 98%	=	$ 2,19,912
After discount period	$3,74,000 X 60%	=	$ 2,24,400
Collection within the month of following sale:
Within discount period	$3,74,000 X 15% X 98%	=	$     54,978
After discount period	$3,74,000 X 7%	=	$     26,180
Less: Returns, allowances, and Uncollectibles	$3,74,000 X 3%	=	$     11,220
(a)			$     69,938
February
Collection with the month of sale:
Within discount period	$5,80,000 X 60% X 98%	=	$ 3,41,040
After discount period	$5,80,000 X 60%	=	$ 3,48,000
(b)			$ 6,89,040
Collection within the month of following sale:
Within discount period	$5,80,000 X 15% X 98%	=	$     85,260
After discount period	$5,80,000 X 7%	=	$     40,600
Less: Returns, allowances, and Uncollectibles	$5,80,000 X 3%	=	$     17,400
Estimated cash collections for the month of February	(a) + (b)	=	$ 7,58,978