Casa Development, Inc. has budgeted sales revenues as follows: Past experience indicated that 80%...

Question:

Casa Development, Inc. has budgeted sales revenues as follows:

Budgeted Sales Revenues
January $55,000 February 75,000 March 90,000 April 80,000 May 60,000 June 35,000 Past experience indicated that 80% of sales each month are on credit and that collection of credit sales occurs as follows: 50% in the month of sale, 30% in the month following the sale, and 5% in the second month following the sale. the other 5% is uncollectible. Prepare a schedule which shows expected cash receipts from sales for the months of April, May, and June. CASA DEVELOPMENT, INC. Expected Cash Receipts from Sales For the Quarter Ended June 30 April May June February Sales Credit Sales$ 
March Sales
Credit Sals
April Sales
Credit Sales
Cash Sales
May Sales
Credit Sales
Cash Sales
June Sales
Credit Sales
Cash Sales
Total Cash Receipts  $Cash vs Credit Sales In general, there are two types of sales for a company: cash sales, when the customer pays upon receipt of the product or service, and credit sales, where the customer agrees to pay sometime in the future. The company recognizes revenue immediately in both cases, however, its cash flow depends on when the payment is actually received. Answer and Explanation: For the 5 months of sales (Feb-June), note the following: • Cash sales were only relevant for April, May, and June (20% of total sales in each month). • The percentages of total credit sales as outlined in the problem (50% in the month of sale, 30% in the month following the sale, and 5% in the second month following the sale, the other 5% is uncollectible) only add up to 90%. In order for the problem to make sense, we will assume that 40% of the credit sales are collected in the month following the sale, rather than 30%. • Therefore, the timing of payments for each month's sales are as follows: Timing of Payments Current Month (cash sales) 20% Current Month (credit sales) 40% Month after Sales 32% Two months after Sales 4% Uncollectible 4% Total 100% We can now use these percentages and the budgeted monthly sales to fill out the projected 2Q cash receipts schedule: April May June February Sales Credit Sales$3,000
March Sales
Credit Sales $28,800$3,600
April Sales
Credit Sales $32,000$25,600 $3,200 Cash Sales$16,000
May Sales
Credit Sales $24,000$19,200
Cash Sales $12,000 June Sales Credit Sales$14,000
Cash Sales $7,000 Total Cash Receipts$79,800 $65,200$43,400