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Tall Guys Clothing has a 45 day collection period. Sales for the next calendar year are estimated...

Question:

Tall Guys Clothing has a 45 day collection period. Sales for the next calendar year are estimated at $2,100, $1,600, $2,500 and $2,300, respectively, by quarter, starting with the first quarter of the year. Assume a year has 360 days.

How much is the cash collection for quarter 2?

How much is the cash collection for quarter 4?

Cash collection:

Cash collection refers to the amount of cash collected from the accounts receivables of the company. It is given as the cash sales plus the cash collected from current and previous period outstanding accounts receivables.

Answer and Explanation:

A quarter has 90 days in a year of 360 days.

So, half of the sales of the quarter are collected in the next quarter and half in the same quarter as the collection period is 45 days.

So,

Collection in Quarter 2
= 50% of Sales of Quarter 1 + 50% of Sales of Quarter 2
= 50% x 2,100 + 50% x 1,600
= $1,850.00

Similarly,

Collection in Quarter 4
= 50% of Sales of Quarter 3 + 50% of Sales of Quarter 4
= 50% x 2,500 + 50% x 2,300
= $2,400.00


Learn more about this topic:

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Cash Collection & Concentration: Definition & Components

from Finance 101: Principles of Finance

Chapter 18 / Lesson 3
3.2K

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