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Rudd Company has budgeted sales revenue as follows for the next 4 months: February $300,000 March 240,000 April 210,000 May 330,000 Past experience indicates that 80% of sales each month are on credit and that collection of credit sales occurs as follows: 60% in the month of sale, 35% in the month following the sale, and 3% in the second month following the sale. The other 2% is uncollectible. Prepare a schedule which shows expected cash receipts from sales for the month of May.

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Answer and Explanation:

The Preparation of cash receipts from sales for the month of May is shown below:-

March Sales

Credit sales  $240,000 × 80% × 3%      $5,760

April sales

Credit sales $210,000 × 80% × 35%    $58,800

May sales

Credit sales $330,000 × 80% × 60%    $158,400

Cash sales  $330,000 ×            ×  20% $66,000

Total Cash receipts                                $288,960

Therefore we add March credit sales, April credit sales, may credit sales and may cash sales to reach total cash receipts.

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