GTD, Inc. makes a product that has peak sales in September of each year. The com
ID: 2444227 • Letter: G
Question
GTD, Inc. makes a product that has peak sales in September of each year. The company has prepared a sales budget for the third quarter as shown below:Budgeted Sales
July $200,000
August 400,000
September 600,000
The company is in the process of preparing a cash budget for the third quarter and must determine the expected cash collections by month. To this end, the following information has been assembled:
Collections on Sales
In month of sale 60%
In month following sale 25%
In second month following sale 15%
The company gives a 3% cash discount to customers paying in the month of their sale. The company charges 2% interest to customers who pay in the second month following their sales. The accounts receivable balance to start the quarter is $150,000: from May's sales and $115,000 from June's sales.
Required: Prepare a cash receipts budget for the third quarter.
Explanation / Answer
Cash Receipt Budget for the 3rd Quarter
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July August September
May Sales
150,000x15%x102% $22,950
June Sales
115,000x25% $28,750
115,000x15%x102% $17,595
July Sales
200,000x60%x97% $116,400
200,000x25% $50,000
200,000x15%x102% $30,600
August Sales
400,000x60%x97% $232,800
400,000x25% $100,000
September Sales
600,000x60%x97% $349,200
Total Collections $168,100 $300,395 $479,800
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