Asked by devanshi mehrotra on Jun 12, 2024
Verified
The LaPann Corporation has obtained the following sales forecast data: The regular pattern of collection of credit sales is 20% in the month of sale, 70% in the month following the month of sale, and the remainder in the second month following the month of sale. There are no bad debts.The budgeted accounts receivable balance on September 30 would be:
A) $126,000
B) $148,000
C) $166,000
D) $190,000
Budgeted Accounts Receivable
The expected amount of money owed to a company by its customers for goods or services delivered, as forecasted in the budget.
Regular Pattern of Collection
A systematic approach to gathering data or information at consistent intervals.
Credit Sales
Sales transactions where the customer is allowed to pay at a later date, extending credit rather than requiring payment upfront.
- Comprehend the role of accounts receivable and payable in the management of cash budgets.
Verified Answer
July credit sales = $40,000
August credit sales = $50,000
September credit sales = $60,000
Next, we can calculate the collections for each month:
July collections = 20% of $40,000 = $8,000
August collections = 70% of ($40,000 + $50,000) = $63,000
September collections = Remaining amount = $39,000
We can now calculate the remaining accounts receivable balance for each month:
End of July = $40,000 - $8,000 = $32,000
End of August = $50,000 - $63,000 = -$13,000 (Note: this is a credit balance, representing the amount collected in advance)
End of September = $60,000 - $39,000 = $21,000
Finally, we need to add up the ending accounts receivable balances for August and September and subtract the credit balance:
Accounts Receivable on September 30 = $21,000 - $13,000 = $8,000
Therefore, the budgeted accounts receivable balance on September 30 is $166,000 (Choice C).
Learning Objectives
- Comprehend the role of accounts receivable and payable in the management of cash budgets.
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