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Hi My dear Tutor, I have a hardship in the understanding of cash budgets.
Invoices paid in the month after the sale———60%
invoices paid in the second month after the sale-25%
invoices paid in the third month after the sale–12%
bad debts-2%Invoices are issued on the last days of each month.
Customers paying in the month after sale are entitled ti deduct a 2% settlement discount.Credit sales values for June to September are budgeted as follows
June-35000$
July-40000$
August-60000$
September-$45000WHat is the amount budgeted to be received from credit sales in September?
August sales $60000*60%*98%=35200—Invoices paid in the month after the sale———60%-normally i did not understand anything from invoice what it wants to explain but from my understanding if it says credit sales in September usually credit sales august willl be paid in september that is why we take 60000 but coming to settlement discount we we take it into consideration in 60000 not in say for example june or july?
July sale $40000*25%=10000—-invoices paid in the second month after the sale-25%-this is understandable after second month which will be on July.
June sale $35000*12%=4200–invoices paid in the third month after the sale–12%–if it says third months and how can i take June’s amount?
total=49480
Really need explanation, I am watching your lectures it is really helpful and i can find the answer of my question often.
For June invoices, 60% are paid in July (the month after sale) and they get a 2% discount; 25% are paid in August; and 12% are paid in September.
The same procedure applies each month.So in September they receive 12% of June’s sales; 25% of July’s sales; and 12% of August’s sales less a 2% discount.
They only get the 2% discount for the amount that is paid in the month after the invoice. So in September, it is only part of August’s sales that are being paid the month after.
The third month after June’s sales in September – see the first sentence above 🙂
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