Question

Watt’s Lighting Stores made the following sales projection for the next six months. All sales are credit sales.

March	\(35,000
April	41,000
May	30,000
June	39,000
July	47,000
August	49,000

Sales in January and February were \)38,000 and $37,000, respectively. Experience has shown that of total sales, 10 percent are uncollectible, 30 percent are collected in the month of sale, 40 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.

Of the sales expected to be made during the six months from March through August, how much will still be uncollected at the end of August? How much of this is expected to be collected later?

Short answer

Schedule of cash receipts

Months	Credit sales	In the month of sales @ 30% (A)	One month after sales @ 40% (B)	Two month after sales @ 20% (C )	Total cash receipts (A+B+C)
January	$38,000
February	37,000
March	35,000	10,500	14,800	7,600	32,900
April	41,000	12,300	14,000	7,400	33,700
May	30,000	9,000	16,400	7,000	32,400
June	39,000	11,700	12,000	8,200	31,900
July	47,000	14,100	15,600	6,000	35,700
August	49,000	14,700	18,800	7,800	41,300

The uncollected amount at the end of the august is $24,100 and the amount expected to be collected later is $38,800.

Step-by-step solution

Cash receipt in the month of March

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{march}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{february}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{january}\times 20\%\right)\\ & =& \left(\$35,000\times 30\%\right)+\left(\$37,000\times 40\%\right)+\left(\$38,000\times 20\%\right)\\ & =& \$32,900\end{array}$

Cash receipt in the month of April

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{april}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{march}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{february}\times 20\%\right)\\ & =& \left(\$41,000\times 30\%\right)+\left(\$35,000\times 40\%\right)+\left(\$37,000\times 20\%\right)\\ & =& \$33,700\end{array}$

Cash receipt in the month of May

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{may}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{april}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{march}\times 20\%\right)\\ & =& \left(\$30,000\times 30\%\right)+\left(\$41,000\times 40\%\right)+\left(\$35,000\times 20\%\right)\\ & =& \$32,400\end{array}$

Cash receipt in the month of June

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{june}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{may}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{april}\times 20\%\right)\\ & =& \left(\$39,000\times 30\%\right)+\left(\$30,000\times 40\%\right)+\left(\$41,000\times 20\%\right)\\ & =& \$31,900\end{array}$

Cash receipt in the month of July

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{july}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{june}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{may}\times 20\%\right)\\ & =& \left(\$47,000\times 30\%\right)+\left(\$39,000\times 40\%\right)+\left(\$30,000\times 20\%\right)\\ & =& \$35,700\end{array}$

Cash receipt in the month of August

$\begin{array}{rcl}\mathrm{Cash}\mathrm{receipt}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{august}\times 30\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{july}\times 40\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{june}\times 20\%\right)\\ & =& \left(\$49,000\times 30\%\right)+\left(\$47,000\times 40\%\right)+\left(\$39,000\times 20\%\right)\\ & =& \$41,300\end{array}$

The uncollected amount at the end of the August

$\begin{array}{rcl}\mathrm{Uncollected}\mathrm{amount}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{march}+\mathrm{Sale}\mathrm{of}\mathrm{april}+\mathrm{Sale}\mathrm{of}\mathrm{may}+\mathrm{Sale}\mathrm{of}\mathrm{june}+\mathrm{Sale}\mathrm{of}\mathrm{july}+\mathrm{Sale}\mathrm{of}\mathrm{august}\right)\times 10\%\\ & =& \left(\$35,000+\$41,000+\$30,000+\$39,000+\$47,000+\$49,000\right)\times 10\%\\ & =& \$24,100\end{array}$

Amount to be collected later

$\begin{array}{rcl}\mathrm{Amount}\mathrm{to}\mathrm{be}\mathrm{collected}& =& \left(\mathrm{Sale}\mathrm{of}\mathrm{july}\times 20\%\right)+\left(\mathrm{Sale}\mathrm{of}\mathrm{august}\times \left(40\%+20\%\right)\right)\\ & =& \left(\$47,000\times 20\%\right)+\left(\$49,000\times 60\%\right)\\ & =& \$38,800\end{array}$