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Vincent is preparing a cash budget for July. His credit sales are as follows.
April (actual) 40,000
May (actual) 30,000
June (actual) 20,000
July (estimated) 25,000His recent debt collection experience has been as follows:
Current month’s sales 20%
Prior month’s sales 60%
Sales two months prior 10%
Cash discounts taken 5%
Irrecoverable debts %
Vincent can expect to collect $_________ from credit customers during July.Answer is 20000. Why we will not dealing with Discount and Irrecoverable debt? And please tell what is impact of it if we had to charge bad debts and give cash discounts.
I assume that only amounts paid in the month get the cash discount. So:
25,000 x 20% + 20,000 x 60% + 30,000 x 10% = 20,000.
I don’t know why discounts and bad debts are not accounted for.
If they were accounted for, discounts would presumably be given only on current month’s receipts and 5% bad debts would be deducted.
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