Budgeting Basics and Beyond

6.3. Monthly Cash Collections from Customers

Frequently there are time lags between monthly sales made on account and their related monthly cash collections. For example, in any month, credit sales are collected in this manner: 15 percent in month of sale, 60 percent in the following month, 24 percent in the month after, and the remaining 1 percent are uncollectible.

	April—Actual	May—Actual	June—Budgeted	July—Budgeted
Credit sales	$320	200	300	280

The budgeted cash receipts for June and July are computed:

For June:

From April sales	$320 × .24	$76.80
From May sales	200 × .6	120.00
From June sales	300 × .15	45.00
Total budgeted collections in June		$241.80

For July:

From May sales	$200 × .24	$48
From June sales	300 × .6	180
From July sales	280 × .15	42
Total budgeted collections in July		$270