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 1 percent cash discount for payments made by customers during the month of sale. The accounts receivable balance on April 30 is $29,000, of which $8,000 represents uncollected March sales and $21,000 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.

Answer and Explanation:

The preparation of the schedule of budgeted cash collections for three months is presented below:

Perrier, Inc.

Schedule of Budgeted Cash Collections

Quarterly by Months

Particulars May June July Total

Budgeted Sales ($) 100,000 180,000 200,000 480,000

Collections:

60 percent in the month of sale ($) $60,000 $108,000 $120,000 288,000

Less: 1 % discount for payment in month of sale ($600) ($1,080) ($1,200) ($2,880)

Net Cash inflow in the month of sale ($) 59,400 106,920 118,800 285,120

20 percent in the month following sale ($) 10,500 20,000 36,000 66,500

15 percent in the second month following sale ($) 6,000 7,875 15,000 28,875

Net Cash collection during the month ($) 75,900 134,795 169,800 380,495

Working Notes

For April:

Uncollected Sales Revenue = $ 21,000

Total Sales Revenue for April = 21,000 : 40% = $ 52,500

40% represent the uncollected sales

20 percent in the following month sale for April

= 52,500 * 20%

= $ 10,500

15 percent in the following second month sale for March

= 52,500 * 15%

= $7,875

For March:

Uncollected Sales Revenue = $8,000

Total Sales Revenue for April = 21,000 : 20% = $40,000

15 percent in the following second month sale for April

= 40,000 * 15%

= $6,000