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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 58,00080% 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 $57,792cash sales
April 20% x 58,000 11,600Credit 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 57,792Hi,
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
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