Mitchell Company had the following budgeted sales for the last half of last year

Question

Mitchell Company had the following budgeted sales for the last half of last year:        

      

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:

      

      

Assume that the accounts receivable balance on July 1 was $76,000. Of this amount, $50,000 represented uncollected June sales and $26,000 represented uncollected May sales. Given these data, the total cash collected during July would be:

Cash Sales Credit Sales    July $50,000        $150,000         August $55,000        $170,000         September $56,000        $130,000         October $61,000        $156,000         November $71,000        $200,000         December $80,000        $460,000     

Explanation / Answer

$50,000 uncollected June sales = 50% of June credit sales

June credit sales = 50,000/50% = $100,000

Amount of June sales collected in July =30%*100000= 30,000

Amount of May sales collected in July =26,000

Amount of July sales collected in July=50,000 + 150,000*50%=125,000

total cash collected during July = 30,000+26000 + 125000=$181,000

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