Question

Alpha Company makes all its sales on account. Accounts receivable payment experience is as follows: Percent paid in the month of sale 35% Percent paid in the month after the sale 54% Percent paid in the second month after the sale 6% Alpha provided information on sales as follows: May $150,000 June $125,000 July $136,000 August (expected) $142,000 What is budgeted cash to be collected on account for the month of August?

Answer 1

Answer:

Budgeted cash to be collected in August = $130,640.

Explanation:

Based on the question, in the month of August, it would also receive cash collections from two months prior i.e. June as well as July. August is two months after June. Hence, 6% of $125000 would be collected. August is also one month after July, hence 54% of $136000 would also be collected. The % and calculations have been shown below.

June sales - 6% x 125000 = $7500

July sales - 54% x 136000 = $73440

Along with these, 35% of the expected sales to be made in August would also be collected - 35% x 142000 = $49700.

Hence, the budgeted cash to be collected in the month of August would be - $7500 + $73440 + $49700 = $130,640.