Tableware Unlimited Company plans to sell china and other dining-related items over the internet. The company plans to begin business on January 1, Year 1. The company's accountant has prepared the following sales budget for the first quarter of Year 1:
In anticipation of preparing a cash budget, the accountant needs to compute the expected monthly cash collections. Because the company is new and has no collection experience of its own, the accountant contacted an industry trade group and obtained the following industry collection data:Collections on account:70% in the month of sale20% in the month following sale6% in the second month following
saleUncollectible accounts have averaged 4% of receivables. The company gives a 2% discount for payments made by customers during the month of sale. Required:Prepare a schedule of cash collections from sales by month and in total for the first quarter.
What will be an ideal response?
Answers will vary.
Schedule of cash collections:
| ? | January | February | March | First Quarter |
| Budgeted sales | $ 200,000 | $ 250,000 | $ 300,000 | $ 750,000 |
| ? | January | February | March | First Quarter |
| Collections in the month of sale (70% less discount) | $ 137,200 | $ 171,500 | $ 205,800 | $ 514,500 |
| Collections in the month after sale (20%) | - | 40,000 | 50,000 | 90,000 |
| Collections in the second month following sale (6%) | - | - | 12,000 | 12,000 |
| Total budgeted collections | $ 137,200 | $ 211,500 | $ 267,800 | $ 616,500 |
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