ExpertMedium2 marksMultiple Choice
ACCA · Question 22 · Budgeting
An agricultural exporter has the following sales forecast:
January: $100,000
February: $120,000
March: $150,000
Customers pay 40% in the month of sale, 50% in the month following the sale, and 10% is written off as bad debts.
What are the expected cash receipts from sales in March?
An agricultural exporter has the following sales forecast:
January: $100,000
February: $120,000
March: $150,000
Customers pay 40% in the month of sale, 50% in the month following the sale, and 10% is written off as bad debts.
What are the expected cash receipts from sales in March?
Answer options:
A.
$150,000
B.
$120,000
C.
$135,000
D.
$110,000
How to approach this question
Calculate cash from March sales (40% of $150k) and add cash from February sales collected in March (50% of $120k). Ignore bad debts for cash flow.
Full Answer
B.$120,000✓ Correct
Cash collected in March comes from two sources:
1. Current month (March) sales: 40% * $150,000 = $60,000.
2. Previous month (February) sales: 50% * $120,000 = $60,000.
Total receipts = $60,000 + $60,000 = $120,000. Bad debts do not generate cash.
Common mistakes
Trying to deduct bad debts from the cash collected, or calculating cash for the wrong month.
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