Question

Simpson Glove Company has made the following sales projections for the next six months. All sales are credit sales.

March	\(41,000
April	50,000
May	32,000
June	47,000
July	58,000
August	62,000

Sales in January and February were \)41,000 and $39,000, respectively. Experience has shown that of total sales receipts 10 percent are uncollectible, 40 percent are collected in the month of sale, 30 percent are collected in the following month, and 20 percent are collected two months after sale.

Prepare a monthly cash receipts schedule for the firm for March through

August.

Short answer

Schedule of cash receipts

Months	Credit sales	In the month of sales @ 40% (A)	One month after sales @ 30% (B)	Two month after sales @ 20% (C )	Total cash receipts (A+B+C)
January	$41,000
February	39,000
March	41,000	16,400	11,700	8,200	36,300
April	50,000	20,000	12,300	7,800	40,100
May	32,000	12,800	15,000	8,200	36,000
June	47,000	18,800	9,600	10,000	38,400
July	58,000	23,200	14,100	6,400	43,700
August	62,000	24,800	17,400	9,400	51,600

Step-by-step solution

Cash receipt in the month of March

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{march}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{february}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{january}\times 20\%\right)\\ & =& \left(\$41,000\times 40\%\right)+\left(\$39,000\times 30\%\right)+\left(\$41,000\times 20\%\right)\\ & =& \$36,300\end{array}$

Cash receipt in the month of April

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{april}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{march}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{february}\times 20\%\right)\\ & =& \left(\$50,000\times 40\%\right)+\left(\$41,000\times 30\%\right)+\left(\$39,000\times 20\%\right)\\ & =& \$40,100\end{array}$

Cash receipt in the month of May

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{may}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{april}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{march}\times 20\%\right)\\ & =& \left(\$32,000\times 40\%\right)+\left(\$50,000\times 30\%\right)+\left(\$41,000\times 20\%\right)\\ & =& \$36,000\end{array}$

Cash receipt in the month of June

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{june}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{may}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{april}\times 20\%\right)\\ & =& \left(\$47,000\times 40\%\right)+\left(\$32,000\times 30\%\right)+\left(\$50,000\times 20\%\right)\\ & =& \$38,400\end{array}$

Cash receipt in the month of July

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{july}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{june}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{may}\times 20\%\right)\\ & =& \left(\$58,000\times 40\%\right)+\left(\$47,000\times 30\%\right)+\left(\$32,000\times 20\%\right)\\ & =& \$43,700\end{array}$

Cash receipt in the month of August

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{august}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{july}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{june}\times 20\%\right)\\ & =& \left(\$62,000\times 40\%\right)+\left(\$58,000\times 30\%\right)+\left(\$47,000\times 20\%\right)\\ & =& \$51,600\end{array}$