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9 February, 01:44

Office World Inc. has "cash and carry" customers and credit customers. Office World estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 25% pay their accounts in the month of sale, while the remaining 75% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows:

October $700,000

November $65,000

December $500,000

The Accounts Receivable balance on September 30 was $290,000.

Required:

Prepare a schedule of cash collections from sales for October, November, and December.

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  1. 9 February, 02:01
    0
    Office World Inc.

    Cash budget

    Amount in $

    October 469,375.00

    November 422,187.50

    December 255,312.5 0

    Explanation:

    The schedule of cash collections for each month will be as spelt out below; 25% of monthly sales, 25% * 75% of the monthly sales and 75% * 75% of the sales in the prior month.

    Hence, Cash collection for

    October

    = 25% * $700,000 + 25% * 75% * $700,000 + 75% * 75% * $290,000

    = $469,375

    November

    = 25% * $65,000 + 25% * 75% * $65,000 + 75% * 75% * $700,000

    = $422,187.50

    December

    = 25% * $500,000 + 25% * 75% * $500,000 + 75% * 75% * $65,000

    = $255,312.5 0
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