Fresplanade Co. had the following historical collection pattern for its credit sales:
75% collected in the month of sale
10% collected in the first month after month of sale
8% collected in the second month after month of sale
5% collected in the third month after month of sale
2% uncollectible
The sales on open account (credit sales) have been budgeted for the last six months of the year as shown below:
July: $78,000
August: $90,000
September: $102,000
October: $114,000
November: $126,000
December: $108,000
The estimated total cash collections by Fresplanade Co. during December from accounts receivable is:
$107,820
Estimated cash collections during December from A/R = Portion of December's credit sales collected in December + Portion of November's credit sales collected in December + Portion of October's credit sales collected in December + Portion of September's credit sales collected in December = [$108,000 × 0.75] + [$126,000 × 0.10] + [$114,000 × 0.08] + [$102,000 × 0.05] = $107,820
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