Logan Township acquired its water system from a private company onJune 1. No receivables were acquired with the purchase. Therefore, totalaccounts receivable on June 1 had a zero balance.Logan plans to bill customers during the month of sale, and 70% of theresulting billings will be collected during the same month. 90% of theremaining balance should be collectable in the next following month.The remaining uncollectible amounts will relate to citizens who havemoved away. Such amounts are never expected to be collected and willbe written off.Water sales during June are estimated at $3,000,000 and remain thesame in July and August.Estimate the monthly cash collections for August. An example for Juneand July follows:June July August$3,000,000 X .7 =$2,100,000 (Junereceivables collected inJune). This leaves$900,000 yet to becollected.$3,000,000 X .7 =$2,100,000 (Julybillings collected inJuly). In addition, 90%of June’s uncollectedreceivables will becollected: $900,000 X.9 = $810,000.$2,100,000 + $810,000= $2,910,000 will becollected in July.($90,000 will never becollected)Without performing calculations, how would the answer change if Logan bills customers in the month following the month of sales?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Logan Township acquired its water system from a private company on
June 1. No receivables were acquired with the purchase. Therefore, total
accounts receivable on June 1 had a zero balance.
Logan plans to bill customers during the month of sale, and 70% of the
resulting billings will be collected during the same month. 90% of the
remaining balance should be collectable in the next following month.
The remaining uncollectible amounts will relate to citizens who have
moved away. Such amounts are never expected to be collected and will
be written off.
Water sales during June are estimated at $3,000,000 and remain the
same in July and August.
Estimate the monthly cash collections for August. An example for June
and July follows:
June July August
$3,000,000 X .7 =
$2,100,000 (June
receivables collected in
June). This leaves
$900,000 yet to be
collected.
$3,000,000 X .7 =
$2,100,000 (July
billings collected in
July). In addition, 90%
of June’s uncollected
receivables will be
collected: $900,000 X
.9 = $810,000.
$2,100,000 + $810,000
= $2,910,000 will be
collected in July.
($90,000 will never be
collected)
Without performing calculations, how would the answer change if Logan bills customers in the month following the month of sales?
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