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Cash budget

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Cash budget

  • This topic has 1 reply, 2 voices, and was last updated 11 months ago by John Moffat.
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    Posts
  • October 9, 2022 at 7:01 am #668156
    AbrahamChinYuan
    Participant
    • Topics: 22
    • Replies: 22
    • ☆

    Vincent is preparing a cash budget for July. His credit sales are as follows.

    April (actual) 40,000 usd
    May (actual) 30,000 usd
    June (actual) 20,000 usd
    July (estimated) 25,000 usd

    His recent debt collection experience has been as follows:

    Current month’s sales 20%
    Prior month’s sales 60%
    Sales two months prior 10%
    Irrecoverable debts 5%

    How much may Vincent expect to collect from credit customers during July?

    the answer given is 20k usd.
    Solution:
    July’s sales $25,000 × 20% 5,000
    June’s sales $20,000 × 60% 12,000
    May’s sales $30,000 × 10% 3,000
    ––––––
    20,000

    I had read your all noted and video lectures and i had few points that confused me.
    i) what is meant by “debt collection experience”?
    ii) what is the current month? I think is June because he is preparing cash budget for July.
    iii) I do not understand the solution given. may you help to explain how to get the correct answer for this question? Thankx in advance.

    October 9, 2022 at 9:03 am #668160
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 53174
    • ☆☆☆☆☆

    1. It is the way that customers are paying each month.

    2. Current month is not a specific month. It is just that every month 20% are paying in the same month.

    3. July is 2 months after May and so in July they will receive cash from 10% of May’s sales.
    July is 1 month after June and so in July they will receive 60% of June’s sales.
    In July they will also receive 20% of that months sales (i.e. July’s sales).

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