Question

J. Lo’s Clothiers has forecast credit sales for the fourth quarter of the year:

September (actual)	\(70,000
Fourth Quarter
October	\)60,000
November	55,000
December	80,000

Experience has shown that 30 percent of sales are collected in the month of sale, 60 percent are collected in the following month, and 10 percent are never collected.

Prepare a schedule of cash receipts for J. Lo’s Clothiers covering the fourth quarter (October through December).

Short answer

Schedule of cash receipts

	September	October	November	December
Credit sales	$70,000	$60,000	$55,000	$80,000
In month of sales @30%		18,000	16,500	24,000
One month after sales @ 60%		42,000	36,000	33,000
Total cash receipts		$60,000	$52,500	$57,000

Step-by-step solution

Cash receipt in the month of October

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{october}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{september}\times 60\%\right)\\ & =& \left(\$60,000\times 30\%\right)+\left(\$70,000\times 60\%\right)\\ & =& \$60,000\end{array}$

Cash receipt in the month of November

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{novermber}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{october}\times 60\%\right)\\ & =& \left(\$55,000\times 30\%\right)+\left(\$60,000\times 60\%\right)\\ & =& \$52,500\end{array}$

Cash receipt in the month of December

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{december}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{november}\times 60\%\right)\\ & =& \left(\$80,000\times 30\%\right)+\left(\$55,000\times 60\%\right)\\ & =& \$57,000\end{array}$