Alpha Company is preparing its cash budget for the month of May. The company est

Question

Alpha Company is preparing its cash budget for the month of May. The company estimated credit sales for May at $200,000. Actual credit sales for April were $150,000. Estimated collections in May for credit sales in May are 20%. Estimated collections in May for credit sales in April are 70%. Estimated Collections in May for credit sales prior to April are $12,000. Estimated write-offs in May for uncollectible credit sales are $8,000. Estimated provision for bad debts in May for credit sales in May are $7,000. What are the estimated cash receipts from accounts receivable collections in May?

Should you deduct or not the (estimated write-offs ($8000)
& Provision for bad debts ($7000)). Please explain full detail. Thanks

Explanation / Answer

Estimated cash receipt

Provision and write should not be deducted while calculating the cash received in actual.

However such write off and provision can be deducted for calculating the future receivable for credit sales but for such amount which has actually been received.

Question also specifically says about calculation of cash receipts in may but not for future receivables for may credit sales hence such provision and write off will not be deducted

Particulars Amount Collection in may of may ($200000*20%) $40000 Collection in may of april ($150000*70%) $105000 Collection in may of month previous of april $12000 Cash Received from customers $157000

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