Question

Office World Inc. has "cash and carry" customers and credit customers. Office World estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 25% pay their accounts in the month of sale, while the remaining 75% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows:

August $109,000
September $136,000
October $199,000

The Accounts Receivable balance on July 31, 2016, was $73,000.
Required:
Prepare a schedule of cash collections from sales for August, September, and October. Round all calculations to the nearest whole dollar.

Answer 1

Answer and Explanation:

The preparation of schedule a cash collections from sales for August, September, and October is shown below:-

                 Office World inc.

              Schedule for collections from sales

For the Three Months Ending October 31, 2016

                                          August            September            October

Receipts from cash sales:    

Cash sales (25%)             $27,250            $34,000                $49,750

Collected in August         $73,000

August sales on account:    

Collected in August

($109,000 × 75% × 25%)   $42,510

Collected in September                             $61,313

($109,000 × 75% × 75%)

September sales on account:    

Collected in September                             $25,500

($136,000 × 75% × 25%)

Collected in October                                                            $76,500

($136,000 × 75% × 75%)

October sales on account:    

Collected in October                                                              $37,313

($199,000 × 75% × 25%)

Total cash receipts      $142,760            $120,813              $163,563