Duluth Company is preparing its cash budget for December. The following information is available...

Question:

Duluth Company is preparing its cash budget for December. The following information is available concerning its accounts receivable:

Estimated credit sales for December $240,00
Actual credit sales for November $181,000
Estimated collections in December for credit sales in December 25%
Estimated collections in December for credit sales in November 70%
Estimated collections in December for credit sales prior to November $20,000
Estimated write-offs in December for uncollectible credit sales $9,000
Estimated provision for bad debts in December for credit sales in December $8,700

Required:

What is the estimated amount of cash receipts from accounts receivable collections in December?

Cash Collection

The amount of cash collected from credit sales is dependent upon the amount of credit sales, the terms of the credit sales, and the ability of the customer to pay according to those terms.

Answer and Explanation:

The answer is $206,700.

See the following table.

November December
Credit Sales 100.0% $181,000 $240,000
Current Month 25.0% $45,250 $60,000
Month Following 70.0% $126,700
Prior to Nov. $20,000
Collections $206,700

Assumption/Comment

Estimated write-offs would reduce remaining aged accounts receivable. The prior to November credit sales were estimated as being collectible.

The provision for bad debt does not impact collections.


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