Preparing A Schedule Showing The Cash Expected In Payments
Preparing a schedule showing the cash expected in payments on accounts receivable in August and in September
Kailua and Company is a legal services firm. All sales of legal services are billed to the client (there are no cash sales). Kailua expects that, on average, 20 percent will be paid in the month of billing, 50 percent will be paid in the month following billing, and 25 percent will be paid in the second month following billing. For the next five months, the following sales billings are expected: May $84,000, June $100,800, July $77,000, August $87,600, September $90,000. Prepare a schedule showing the cash expected in payments on accounts receivable in August and in September. If an amount is zero, enter "0".
Paper For Above instruction
To prepare the schedule of cash collections for August and September based on the sales forecast and collection pattern, we analyze each month’s sales and their respective collection periods. The collection pattern indicates that 20% of sales are collected in the month of billing, 50% in the month after billing, and 25% two months after billing.
For August cash collections:
- From May sales ($84,000): 25% collected in August = 0.25 x $84,000 = $21,000
- From June sales ($100,800): 50% collected in August = 0.50 x $100,800 = $50,400
- From July sales ($77,000): 20% collected in August = 0.20 x $77,000 = $15,400
Total cash collections in August = $21,000 + $50,400 + $15,400 = $86,800
For September cash collections:
- From June sales ($100,800): 25% collected in September = 0.25 x $100,800 = $25,200
- From July sales ($77,000): 50% collected in September = 0.50 x $77,000 = $38,500
- From August sales ($87,600): 20% collected in September = 0.20 x $87,600 = $17,520
Total cash collections in September = $25,200 + $38,500 + $17,520 = $81,220
Summary of cash collections:
| Month | Sales | Collection in target month | Amount |
|---|---|---|---|
| May | $84,000 | August (25%) | $21,000 |
| June | $100,800 | August (50%) | $50,400 |
| July | $77,000 | August (20%) | $15,400 |
| June | $100,800 | September (25%) | $25,200 |
| July | $77,000 | September (50%) | $38,500 |
| August | $87,600 | September (20%) | $17,520 |
Thus, the expected cash collections for August is approximately $86,800, and for September approximately $81,220.
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