Sales on account for the first two months of the current year are budgeted as fo

Question

Sales on account for the first two months of the current year are budgeted as follows: Jan. . . . . $800,000 Feb. . . . . . . . . . . . 880,000 All sales are made on terms of 2/10, n/30 (2% discount if paid in 10 days, full amount by 30 days); collections on accounts receivable are typically made as follows: Collections within the month of sale: Within discount period . . . . . . . .. . . . 70% After discount period . . . . . . . . . 10 Collections within the month following sale: Within discount period . . . . . . . 12 After discount period . . . . . . . 6 Returns, allowances, and uncollectibles . . . 2 ....Total . . . . . . . 100% Compute the estimated cash collections on accounts receivable for the month of February

Explanation / Answer

Cash collection January February Budgeted Sales 800000 880000 Month of sale Within Discount period - 70% of budgeted sales 560000 616000 Less Discount @ 2% 11200 12320 Net collection (A) 548800 603680 After discount period - 10% of budgeted sales (B) 80000 88000 Month following sale Within Discount period - 12% of sales of previous month 96000 Less Discount @ 2% 1920 Net collection (C) 94080 After discount period - 6% of sales of previous month (D) 48000 Total collection for February ( A + B + C + D) 833760

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