Mike is concerned about the cash receipts schedule of his business since all of the business's customers deal in credit instead of cash. Based on historical data, he is expecting to receive collections on accounts receivable (A/R) as follows: 55% in the month of sale, 40% in the next month after the sale, and 5% becomes uncollectible. Mike has decided to write off the business's uncollectible A/R at the end of second month after the sale. The following table provides the month-by-month summary of sales for Mike's business:
How much uncollectible A/R will Mike write off at the end of May?

Question

Mike is concerned about the cash receipts schedule of his business since all of the business's customers deal in credit instead of cash. Based on historical data, he is expecting to receive collections on accounts receivable (A/R) as follows: 55% in the month of sale, 40% in the next month after the sale, and 5% becomes uncollectible. Mike has decided to write off the business's uncollectible A/R at the end of second month after the sale. The following table provides the month-by-month summary of sales for Mike's business:
 How much uncollectible A/R will Mike write off at the end of May?

Quizplus · Accepted Answer

The amount of uncollectible A/R that would be written off at the end of May = 5% of March credit sales = $750. See additional explanation below:
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Mike Is Concerned About the Cash Receipts Schedule of His