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Sir John
Kindly help with this question and it’s logic please. It is from BPP revision kit.The following details has been extracted from the receivable collection records of C Co.
Invoice paid in the month after sales – 60%
Invoice pd in the 2nd month after sales – 25%
Invoice paid in the 3rd month after sale – 12%
Bad debt – 3%Invoice are issued on the last day of each month. Customers paying in the month after are entitled to deduct a 2% settlement discount. Credit sales value for June to Sept are budgeted as follows:
June. July Aug. Sept
$35,000. $40,000. $60,000. $45,0000What is the amount budgeted to be received from credit sales in Sept.
Answer is $49,480
Kindly explain the logic behind making the month after sales to be August and why 2nd month is July n 3rd June. I was of the opinion that it should be June to August, not August back to June.
Thanks for your time on this.
I will answer your question, but in future you must ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other!
The cash from the $35,000 invoiced in June is received as follows:
In July: 60% x 35,000 (less 2% discount) = 20,580
In August: 25% x 35000 = 8750
In September: 12% x $35000 = 4200The cash from the 40,000 invoiced in July is received as follows:
In August: 60% x 40,000 (less 2% discount) = 23,520
In September: 25% x 40,000 = 10,000
(and then some in October, but we are not worried about that)The cash from the 60,000 invoiced in August is received as follows:
In September: 60% x 60,000 (less 2% discount) = 35,280
(the rest is received after September, so we are not interested)The cash from the 45,000 invoiced in September is all received after September so is not relevant to us.
So….the total cash received in September is: 4,200 + 10,000 + 35,280 = 49,480
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