Could you please explain why they did not discount the cash sales by 5% as it would have been paid within the 14 days? Thanks
Question:
The information below relates to ABC.
Forecast Sales
$
Jan 60,000
Feb 45,000
March 69,000
April 58,000
80% of sales are made on credit and the collection of credit sales has the following pattern.
Within 14 days 40% (A cash discount of 5% is given).
The month following sale 30%
The second month following sale 20%
The third month following sale 10%
Solution:
THE ANSWER IS $57,792
cash sales
April 20% x 58,000 11,600
Credit sales
Jan sales 60,000 x 80% x 10% 4,800
Feb sales 45,000 x 80% x 20% 7,200
Mar sales 69,000 x 80% x 30% 16,560
Apr sales 58,000 x 80% x 40% x 95% 17,632
Total cash receipts in April 57,792
CIMA Forums
Calculating cash reciepts
6y ago#1Hi,
I think that they have included the 5% discount as they have multiplied the expected cash receipt by 95%.
Thanks
Hi,
Yes, they have multiplied April sales by 95% but only the credit sales that were paid within the 14 days:
Credit sales: 'Apr sales 58,000 x 80% x 40% x 95% 17,632'
However, for the 20% of cash sales, it appears they have simply taken the total cash sales and multiplied it by 20% and have not accounted for the 5% discount.
Cash sales: 'April 20% x 58,000 11,600'.
Thanks
6y ago#3Is it not because there would be no discount as the cash was received after the 14 day period? If you don't pay within 14 days then you do not get the discount.
Thanks
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