Chapter 16, Problem 5QP

Calculating Cash Collections. The Jallouk Company has projected the following quarterly sales amounts for the coming year:

a.    Accounts receivable at the beginning of the year are $330. The company has a 45-day collection period. Calculate cash collections in each of the four quarters by completing the following:

 b.    Rework part (a) assuming a collection period of 60 days.

 c.    Rework part (a) assuming a collection period of 30 days.

Summary Introduction

To determine: The cash collection for each four quarters, when the collection period is 45days.

Introduction:

Cash collection is the amount collected through business. It is a task of accounts receivables.

Answer to Problem 5QP

Q1-$623

Q2-$630

Q3-$653

Q4-$763

Explanation of Solution

Given information:

Accounts receivable at the beginning of the year is $345, and the collection period is 45 days.

Compute the cash collection for each four quarters:

Note: All the receivables, which are outstanding, will be collected in the current year.

Compute the ending receivables for quarter 1:

$\begin{array}{c}\text{Ending receivables}=\frac{90-45}{90}\\ =\frac{45}{90}\\ \text{Ending receivables}=\frac{1}{2}\text{of current sales}\end{array}$

Therefore, the ending receivable will be half of the current year sales.

$\begin{array}{c}\text{Ending receivables}=\frac{1}{2}\left(\$585\right)\\ =\$293\end{array}$

Hence, the ending receivables are $293.

Compute the cash collection for quarter 1:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$330+\$585-\$293\\ =\$623\end{array}$

Hence, the cash collected for the quarter 1 is $623.

Compute the ending receivables for quarter 2:

$\begin{array}{c}\text{Ending receivables}=\frac{1}{2}\text{of current sales}\\ \text{Ending receivables}=\frac{1}{2}\left(\$675\right)\\ =\$338\end{array}$

Hence, the ending receivables are $338.

Compute the cash collection for quarter 2:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$293+\$675-\$338\\ =\$630\end{array}$

Hence, the cash collected for the quarter 2 is $630.

Compute the ending receivables for quarter 3:

$\begin{array}{c}\text{Ending receivables}=\frac{1}{2}\text{of current sales}\\ =\frac{1}{2}\left(\$630\right)\\ =\$315\end{array}$

Hence, the ending receivables are $315.

Compute the cash collection for quarter 3:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$338+\$630-\$315\\ =\$653\end{array}$

Hence, the cash collected for the quarter 1 is $653.

Compute the ending receivables for quarter 4:

$\begin{array}{c}\text{Ending receivables}=\frac{1}{2}\text{of current sales}\\ =\frac{1}{2}\left(\$895\right)\\ =\$448\end{array}$

Hence, the ending receivables are $448.

Compute the cash collection for quarter 4:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$315+\$895-\$448\\ =\$763\end{array}$

Hence, the cash collected for the quarter 1 is $763.

Summary Introduction

To determine: The cash collection for each four quarters, when the collection period is 60 days.

Introduction:

Cash collection is the amount collected through business. It is a task of accounts receivables.

Average cash collection period is the number of days taken to collect the cash from the customers.

$\text{Cash collection period}=\frac{\text{Number of days or months in a year }}{\text{Debtors turnover}}$

Answer to Problem 5QP

Q1-$720

Q2-$645

Q3-$645

Q4-$807

Explanation of Solution

Given information:

Accounts receivables at the beginning of the year are $345 and the collection period is 60 days.

Compute the cash collection for each four quarters:

Note: All the receivables, which are outstanding, will be collected in the current year.

Compute the ending receivables for quarter 1:

$\begin{array}{c}\text{Ending receivables}=\frac{90-60}{90}\\ =\frac{30}{90}\\ =\frac{1}{3}\text{of current sales}\end{array}$

Therefore, the ending receivable will be half of the current year sales.

$\begin{array}{c}\text{Ending receivables}=\frac{1}{3}\left(\$585\right)\\ =\$195\end{array}$

Hence, the ending receivables are $195.

Compute the cash collection for quarter 1:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$330+\$585-\$195\\ =\$720\end{array}$

Hence, the cash collected for the quarter 1 is $720.

Compute the ending receivables for quarter 2:

$\begin{array}{c}\text{Ending receivables}=\frac{1}{3}\text{of current sales}\\ =\frac{1}{3}\left(\$675\right)\\ =\$225\end{array}$

Hence, the ending receivables are $225.

Compute the cash collection for quarter 2:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$195+\$675-\$225\\ =\$645\end{array}$

Hence, the cash collected for the quarter 2 is $645.

Compute the ending receivables for quarter 3:

$\begin{array}{c}\text{Ending receivables}=\frac{1}{3}\text{of current sales}\\ =\frac{1}{3}\left(\$630\right)\\ =\$210\end{array}$

Hence, the ending receivables are $210.

Compute the cash collection for quarter 3:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$225+\$630-\$210\\ =\$645\end{array}$

Hence, the cash collected for the quarter 1 is $645.

Compute the ending receivables for quarter 4:

$\begin{array}{c}\text{Ending receivables}=\frac{1}{3}\text{of current sales}\\ =\frac{1}{3}\left(\$895\right)\\ =\$298\end{array}$

Hence, the ending receivables are $298.

Compute the cash collection for quarter 4:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$210+\$895-\$298\\ =\$807\end{array}$

Hence, the cash collected for the quarter 1 is $807.

Summary Introduction

To determine: The cash collection for each four quarters, when the collection period is 30 days.

Introduction:

Cash collection is the amount collected through business. It is a task of accounts receivables.

Average cash collection period is the number of days taken to collect the cash from the customers.

$\text{Cash collection period}=\frac{\text{Number of days or months in a year }}{\text{Debtors turnover}}$

Answer to Problem 5QP

Q1-$525

Q2-$615

Q3-$660

Q4-$718

Explanation of Solution

Given information:

Accounts receivable at the beginning of the year is $345, and the collection period is 30 days.

Compute the cash collection for each four quarters:

Note: All the receivables, which are outstanding, will be collected in the current year.

Compute the ending receivables for quarter 1:

$\begin{array}{c}\text{Ending receivables}=\frac{90-30}{90}\\ =\frac{60}{90}\\ =\frac{2}{3}\text{of current sales}\end{array}$

Therefore, the ending receivable will be half of the current year sales.

$\begin{array}{c}\text{Ending receivables}=\frac{2}{3}\left(\$585\right)\\ =\$390\end{array}$

Hence, the ending receivables are $390.

Compute the cash collection for quarter 1:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$330+\$585-\$390\\ =\$525\end{array}$

Hence, the cash collected for the quarter 1 is $525.

Compute the ending receivables for quarter 2:

$\begin{array}{c}\text{Ending receivables}=\frac{2}{3}\text{of current sales}\\ =\frac{2}{3}\left(\$675\right)\\ =\$450\end{array}$

Hence, the ending receivables are $450.

Compute the cash collection for quarter 2:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$390+\$675-\$450\\ =\$615\end{array}$

Hence, the cash collected for the quarter 2 is $615.

Compute the ending receivables for quarter 3:

$\begin{array}{c}\text{Ending receivables}=\frac{2}{3}\text{of current sales}\\ =\frac{2}{3}\left(\$630\right)\\ =\$420\end{array}$

Hence, the ending receivables are $420.

Compute the cash collection for quarter 3:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$450+\$630-\$420\\ =\$660\end{array}$

Hence, the cash collected for the quarter 1 is $660.

Compute the ending receivables for quarter 4:

$\begin{array}{c}\text{Ending receivables}=\frac{2}{3}\text{of current sales}\\ =\frac{2}{3}\left(\$895\right)\\ =\$597\end{array}$

Hence, the ending receivables are $597.

Compute the cash collection for quarter 4:

$\begin{array}{c}\text{Cash collection}=\text{Beginning receivables}+\text{Sales}-\text{Ending receivables}\\ =\$420+\$895-\$597\\ =\$718\end{array}$

Hence, the cash collected for the quarter 1 is $718.