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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 usdHis 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
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20,000I 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.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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