Problem
The sales budget for Andrew Inc. is forecasted as follows:
Month Sales Revenue
May .......................................................................................................... $150,000
June .......................................................................................................... 175,000
July ............................................................................................................ 160,000
August ...................................................................................................... 200,000
To prepare a cash budget, the company must determine cash collections from sales. Historically, the following trend has been established regarding cash collection of sales:
. 60% in the month of sales.
. 20% in the month following sale.
. 15% in the second month following sale.
. 5% uncollectible.
The company gives a 2% cash discount for payments made by customers during the month of sale. The accounts receivable balance of April 30 is $85,000, of which $25,000 represents uncollected March sales and $60,000 represents uncollected April sales. (Hint: For collections of March and April receivables, start by determining total sales for the month. Assume the normal sales pattern.)
Task
Prepare a schedule of budgeted cash collections from sale for May, June, and July. Include a three month summary of estimated cash collections.