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In March a company collects $24,800 of cash sales, $39,680 from March sales on account, $36,000 from February sales on account and $5,440 from January sales on account. What are total March collections?
A$100,480
B$74,000
C$129,080
D$105,920
Answer & Solution
Correct answer: D. $105,920
1. Each month brings in cash sales plus receivables from the current month and the previous two months.
2. March is the first month in which all four streams are running.
3. The four amounts are $24,800, $39,680, $36,000 and $5,440.
4. Their total is $105,920 of cash collected in March.
5. The $5,440 tail is 10% of January credit sales, arriving in the second month after the sale.
6. $100,480 drops that oldest tail, which is the easiest of the four to overlook.
7. $74,000 is the February total, when only three of the streams were running.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 7.10 Cash Budget_
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