Q7TI - Horngren'S Financial And Managerial Accounting

Question

Crowley Company projects the following sales:                                                           

                                                                        January        February          March 

Cash sales (25%)                                           \( 5,000           \) 5,500           \( 6,000 

Sales on account (75%)                                 15,000              16,500           18,000 

Total sales                                                     \) 20,000           \( 22,000        \) 24,000 

 

Crowley collects sales on account in the month after the sale. The Accounts Receivable balance on January 1 is \(13,500, which represents December’s sales on account. Crowley projects the following cash receipts from customers: 

                                                                         January           February        March 

Cash receipts from cash sales                     \) 5,000               \( 5,500        \) 6,000 

Cash receipts from sales on account           13,500                15,000          16,500 

Total cash receipts from customers           \( 18,500             \) 20,500        $ 22,500 

Recalculate cash receipts from customers if total sales remain the same but cash sales are only 20% of the total.

Step-by-Step Solution

Answer

The cash receipts from customers in the month of January, February, and March is $18,400, $20,400, and $22,400 respectively.

Step 1: Meaning of Accounts Receivable

Accounts receivable refers to the business entity's sales amount the customers will pay in the future. It is a current asset of the company.

Step 2: Statement showing projected sales

Particulars	January	February	March
Cash sales (20% of total sales)	$4,000	$4,400	$4,800
Credit sales (80% of total sales)	$16,000	$17,600	$19,200
Total Sales	$20,000	$22,000	$24,000

Step 3: Statement showing the projected cash receipts from customer

Particulars	January	February	March
Cash sales	$4,000	$4,400	$4,800
Credit sales	$14,400	$16,000	$17,600
Total cash receipts from customers	$18,400	$20,400	$22,400

Working note:

Calculation of amount of credit sales of January

 $\begin{array}{c}\text{Credit\hspace{0.17em}sales\hspace{0.17em}of\hspace{0.17em}january}=\frac{\$13,500}{75\%}\times 80\%\\ =\$14,400\end{array}$