1. Find the monthly cash collections for August:
According to the question - the water sales in August are the same as June.
This means that sales in August will be $3,000,000
The monthly cash collected in August will be:
$3,000,000 X .7 = $2,100,000 (August billings collected in August).
We would also assume from this question that 90% of the remaining outstanding bills from July would be paid in August.
Therefore:
90% of July’s uncollected receivables will be collected in August:
$900,000 X .9 = $810,000.
$2,100,000 + $810,000 = $2,910,000 will be collected in August.
Similar to the previous month - $90,000 of the outstanding balance from July will never be collected.
2. How would the answer change if Logan bills …show more content…
We would need to know what was the total water sales amount from May. Then calculate how much of this May bill was paid in June. Plus some of the April water usage bills (sent in May) would still be outstanding in June.
Therefore June collections would be:
June collections = % of bills sent in June (which is the bill for May water sales) + % of outstanding bills sent in May (which was the bill for April water sales)
June would also see a write-off of any not paid bills sent in May (which was for April water sales).
Following this pattern, July collections would be:
July collections = % of bills sent in July (which is the bill for June water sales) + % of outstanding bills sent in June (which was the bill for May water sales)
July would also see a write-off of any not paid bills sent in June (which was for May water sales).
Therefore, using this method, collections will take an extra month. And there will be a carried over account receivable amount from the previous 2 months of water sales.
Compared to the original calculations, which collects and writes-off any outstanding amounts within the next month follow the original sales amount.
According to the question - the water sales in August are the same as June.
This means that sales in August will be $3,000,000
The monthly cash collected in August will be:
$3,000,000 X .7 = $2,100,000 (August billings collected in August).
We would also assume from this question that 90% of the remaining outstanding bills from July would be paid in August.
Therefore:
90% of July’s uncollected receivables will be collected in August:
$900,000 X .9 = $810,000.
$2,100,000 + $810,000 = $2,910,000 will be collected in August.
Similar to the previous month - $90,000 of the outstanding balance from July will never be collected.
2. How would the answer change if Logan bills …show more content…
We would need to know what was the total water sales amount from May. Then calculate how much of this May bill was paid in June. Plus some of the April water usage bills (sent in May) would still be outstanding in June.
Therefore June collections would be:
June collections = % of bills sent in June (which is the bill for May water sales) + % of outstanding bills sent in May (which was the bill for April water sales)
June would also see a write-off of any not paid bills sent in May (which was for April water sales).
Following this pattern, July collections would be:
July collections = % of bills sent in July (which is the bill for June water sales) + % of outstanding bills sent in June (which was the bill for May water sales)
July would also see a write-off of any not paid bills sent in June (which was for May water sales).
Therefore, using this method, collections will take an extra month. And there will be a carried over account receivable amount from the previous 2 months of water sales.
Compared to the original calculations, which collects and writes-off any outstanding amounts within the next month follow the original sales amount.