ABC Company expects the following sales and collection pattern for the last four

Question

ABC Company expects the following sales and collection pattern for the last four months of the year:

Month

· 5% of credit sales are collected in the same month · 65% of sales are collected in the following month · 25% of sales are collected in the second following month What are the projected cash collections for the month of December?

Month

Cash Sales Credit Sales Total Sales September $25,000 $65,000 $90,000 October $28,000 $72,000 $100,000 November $26,000 $68,000 $94,000 December $30,000 $71,000 $101,000

Explanation / Answer

Projected cash flows for the month of December = 25% of october credit sales + 65% of November credit sales +

5% of December credit sales

= (72000*25%) + (68000*65%) + (71000*5%)

= $ 65,750.

Note: Total perecentage as per given question, is only 95% but not 100%.

Also, credit sales collections upto second following month of Actual date of sale. So, september month sale

is not considered.

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