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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Schedule of cash collections of accounts receivable

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, 40% pay their accounts in the month of sale, while the remaining 60% 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 650,000
December 500,000

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

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

To determine

Budgeting is a process to prepare the financial statement by the manager to estimate the organization’s future actions. It is also helpful to satisfy the everyday activities.

To Prepare: The schedule of collections from sales of Company O.

Explanation

The following table shows the schedule of collections from sales.

O Company
Schedule of Collections from Sales
For the three months ending December 31
Particulars October ($) November ($) December ($)
Receipts from cash sales:      
    Cash sales (25% × current month’s sales) 175,000 162,500 125,000
September sales on account:      
    Collected in October (Accounts Receivable balance) 290,000    
October sales on account:      
    Collected in October ($525,000(1) × 40%) 210,000    
    Collected in November ($525,000 × 60%) 315,000  
November sales on account:      
    Collected in November ($487,500(2) × 40%)   195,000
    Collected in December ($487,500 × 60%) 292,500
November sales on acc...

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