Concept explainers
Green Landscaping Inc. is preparing its budget for the first quarter of 2017. The next step in the budgeting process is to prepare a cash receipts schedule and a cash payments schedule. To that end the following information has been collected.
Clients usually pay 60% of their fee in the month that service is performed. 30% the month after, and 10% the second month after receiving service.
Actual service revenue for 2016 and expected service revenues for 2017 are November 2016, $80,000; December 2016, $90,000; January 2017, $100,000; February 2017, $120,000; and March 2017, $140,000.
Purchases of landscaping supplies (direct materials) are paid 60% in the month of purchase and 40% the following month. Actual purchases for 2016 and expected purchases for 2017 are December 2016, $14,000; January 2017, $12,000; February 2017, $15,000; and March 2017, $18,000.
Instructions
(a) Prepare the following schedules for each month in the first quarter of 2017 and for the quarter in total:
(1) Expected collections from clients.
(2) Expected payments for landscaping supplies.
(b) Determine the following balances at March 31, 2017:
(1) Accounts receivable.
(2) Accounts payable.
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