The Ballentine Company expects sales for June, July, and August of $48,000, $54,000, and $44,000, respectively. Experience suggests that 40% of sales are for cash and 60% are on credit. The company collects 50% of its credit sales in the month following sale, 45% in the second month following sale, and 5% are not collected. What are the company's expected cash receipts for August from its current and past sales?

Question

Quizplus · Accepted Answer

The expected cash sales for June, July, and August are $19,200 ($48,000 x 40%), $32,400 ($54,000 x 60% x 50%), and $17,600 ($44,000 x 60% x 45%), respectively.

The expected credit sales for June, July, and August are $28,800 ($48,000 x 60%), $21,600 ($54,000 x 40% x 50%), and $26,400 ($44,000 x 40% x 45%), respectively.

Therefore, the expected cash receipts for August are: 
$19,200 for June cash sales + 
$16,200 for July credit sales collected in August ($21,600 x 75%) + 
$11,880 for June credit sales collected in August ($14,400 x 75%) + 
$5,280 for July credit sales collected in September ($21,600 x 25%) + 
$11,880 for June credit sales collected in September ($14,400 x 25%) + 
$12,240 for August credit sales collected in August ($26,400 x 50%) = 
$46,760.

The Ballentine Company Expects Sales for June, July, and August