FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:**Educational Website Content: Cash Collections Budget**
**Introduction:**
Treasury Service forecasts sales revenue over a five-month period. Understanding cash flow is crucial for effective financial management.
**Sales Revenue Overview:**
- **Sales Structure:** 20% cash and 80% credit.
- **Collection of Credit Sales:**
- 25% collected in the month of the sale
- 50% collected the following month
- 20% collected two months later
- 5% are never collected
**Objective:**
Create a cash collections budget to determine cash flow for January, February, March, and the entire quarter.
**Data Overview:**
- **Sales Revenue (in dollars):**
- **November:** $16,100
- **December:** $10,000
- **January:** $15,200
- **February:** $12,000
- **March:** $14,200
**Task Instructions:**
Complete the cash collections budget by calculating the cash sales and collections from credit sales for each month.
**Cash Collections Budget Layout:**
1. **Cash Sales**:
- Calculate 20% of monthly sales revenue.
2. **Collection of Credit Sales**:
- **Month of Sale**: 25% of the credit sales.
- **Month After Sale**: 50% from the previous month's credit sales.
- **Two Months After**: 20% from two months prior.
3. **Total Cash Collections**:
- Sum of cash sales and credit collections for each month.
**Example (for January):**
- **Cash Sales for January:** 20% of $15,200
- **Collection from December Credit Sales:**
- 25% of December ($10,000)
- 50% of November ($16,100) from the previous month
- 20% of October’s sales (not provided in the example)
By understanding these calculations, businesses can predict their cash flow and make informed financial decisions.
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