AAD is a newly created company. It commenced business on 1 October 2012 to provide specialist contract cleaning services to industrial customers. All sales are on credit. More favourable credit terms are offered to larger customers (Class A) than to smaller customers (Class B). All sales are invoiced at the end of the month in which the sale occurs. Class A customers will be given credit terms requiring payment within 60 days of invoicing, while Class B customers will be required to pay within 30 days of invoicing. Since it is recognised, however, that not all customers comply with the credit terms they are allowed, receipts from customers have been estimated as follows: Customer type within 30 days 31 to 60 days 61 to 90 days 91 to 120 days bad debts class A - 50% 30% 15% 5% Class B 60% 25% 10% - 5% The above table shows that customers are expected either to pay within 60days of the end of the credit period, or not at all. Bad debts will therefore be written off 60 days after the end of the credit period. Budgeted credit sales for each class of customer in the first 4 months of trading are as follow Customer type October P'000 Nov P'000 Dec P'000 Jan P'000 class A 100 150 200 300 Class B 60 80 40 50 Required: Prepare a statement showing the budgeted cash to be received by AAD from customers in each of the three months of November, December and January, based upon the estimated receipts from customers
Qeustion 1
AAD is a newly created company. It commenced business on 1 October 2012 to provide specialist contract cleaning services to industrial customers. All sales are on credit. More favourable credit terms are offered to larger customers (Class A) than to smaller customers (Class B). All sales are invoiced at the end of the month in which the sale occurs. Class A customers will be given credit terms requiring payment within 60 days of invoicing, while Class B customers will be required to pay within 30 days of invoicing. Since it is recognised, however, that not all customers comply with the credit terms they are allowed, receipts from customers have been estimated as follows:
|
Customer type |
within 30 days |
31 to 60 days |
61 to 90 days |
91 to 120 days |
|
|
class A |
- |
50% |
30% |
15% |
5% |
|
Class B |
60% |
25% |
10% |
- |
5% |
The above table shows that customers are expected either to pay within 60days of the end of the credit period, or not at all. Bad debts will therefore be written off 60 days after the end of the credit period. Budgeted credit sales for each class of customer in the first 4 months of trading are as follow
|
Customer type |
October P'000 |
Nov P'000 |
Dec P'000 |
Jan P'000 |
|
|
class A |
100 |
150 |
200 |
300 |
|
|
Class B |
60 |
80 |
40 |
50 |
Required: Prepare a statement showing the budgeted cash to be received by AAD from customers in each of the three months of November, December and January, based upon the estimated receipts from customers
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