Problem 4-19 Schedule Of Cash Receipts

Problem 4-19 Schedule of Cash Receipts Lo2watts

Watt's Lighting Stores made sales projections for the next six months, with all sales being credit sales. The sales figures are as follows: January $51,000; February $50,000; March $48,000; April $54,000; May $43,000; June $52,000; July $60,000; August $62,000. Experience indicates that 10% of total sales are uncollectible; 35% are collected in the month of sale; 45% are collected in the following month; and 10% are collected two months after sale.

(a) Prepare a monthly cash receipts schedule for March through August, showing collections of current sales, collections of prior month's sales, collections of sales two months earlier, and total cash receipts.

(b) Determine the amount of sales expected to be made during March through August that will still be uncollected at the end of August, and how much of this will be collected later.

Sample Paper For Above instruction

Introduction

Effective cash flow management is vital for the sustainability and operational efficiency of retail businesses. Watt’s Lighting Stores, like many retail entities, relies heavily on accurate forecasting and collection strategies to ensure liquidity. This paper outlines the detailed schedule of cash receipts for Watt’s Lighting Stores from March to August based on their credit sales pattern and collection experience. It also estimates the remaining uncollected sales by the end of August and anticipates the collection of these amounts in subsequent periods.

Monthly Cash Receipts Schedule

To create an accurate forecast of cash inflows, it is necessary to consider the sales happening in each month along with their respective collection patterns. The sales for January and February—$51,000 and $50,000 respectively—set the baseline, but only the collections during March to August are directly relevant for this period’s cash flow analysis. Given the collection percentages: 35% in the sale month, 45% in the following month, and 10% two months later, cash receipts are computed accordingly.

For March, the cash receipts will include 35% of March sales, 45% of February sales, and 10% of January sales. Similarly, the collections for April include 35% of April sales, 45% of March sales, and 10% of February sales. This pattern continues for subsequent months.

Calculations

Using this pattern, the collections are calculated as follows for each month:

• March: (35% of $48,000) + (45% of $50,000) + (10% of $51,000) = $16,800 + $22,500 + $5,100 = $44,400
• April: (35% of $54,000) + (45% of $48,000) + (10% of $50,000) = $18,900 + $21,600 + $5,000 = $45,500
• May: (35% of $43,000) + (45% of $54,000) + (10% of $48,000) = $15,050 + $24,300 + $4,800 = $44,150
• June: (35% of $52,000) + (45% of $43,000) + (10% of $54,000) = $18,200 + $19,350 + $5,400 = $42,950
• July: (35% of $60,000) + (45% of $52,000) + (10% of $43,000) = $21,000 + $23,400 + $4,300 = $48,700
• August: (35% of $62,000) + (45% of $60,000) + (10% of $52,000) = $21,700 + $27,000 + $5,200 = $53,900

Summing these amounts gives the total cash receipts for each month, providing vital insight into cash flow planning and liquidity management.

Remaining Uncollected Sales

Calculating uncollected sales involves reviewing sales made in each month that have not yet been fully received by the end of August. For sales made in June, only 35% are collected in June, 45% in July, and 10% in August. Therefore, the remaining uncollected portion of June, July, and August sales — that is, the outstanding balance at August’s end — needs to be considered.

For June sales ($52,000): 35% collected in June, 45% in July, 10% in August, leaving 10% uncollected at the end of August, which equals $5,200.

For July sales ($60,000): 35% collected in July, 45% in August, leaving 20% uncollected at the end of August, which equals $12,000.

For August sales ($62,000): 35% collected in August, leaving 65% uncollected, which equals $40,300.

This analysis indicates that at the end of August, the total uncollected sales amount to $5,200 + $12,000 + $40,300 = $57,500. The portion of these sales anticipated to be collected later includes the outstanding balances for September and beyond, which are yet to be realized and are critical for cash flow projections.

Conclusion

The detailed schedule of cash receipts derived from historical collection patterns enables Watt’s Lighting Stores to better manage cash inflows, plan for short-term liquidity needs, and prepare for future collection efforts. The uncollected sales provide insight into potential future cash inflows, vital for maintaining operational stability and supporting strategic expansion plans.

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