1. Calculate the amount for bad debts that will be written off in September 2023. 2. Complete the Debtors' Collection Schedule for August 2023. INFORMATION: A. Extract from the Cash Budget for the two months ending 31 August 2023: | Receipts | JULY | AUGUST | |---|---|---| | Cash sales of merchandise | 64,800 | 50,400 | | Collection from debtors | 46,440 | | | TOTAL RECEIPTS | | | B. Sales, cost of sales and debtors' collection: (a) | | SALES | | COST OF SALES | | |---|---|---|---|---| | | R | | R | | | | Budgeted | Actual | Budgeted | Actual | | May | 105,000 | 78,000 | 70,000 | 52,000 | | June | 123,000 | 89,100 | 82,000 | 60,000 | | July | 108,000 | | 72,000 | | | August | 84,000 | | | | (b) 60% of the total sales are for cash. (c) Credit sales are collected as follows: * 20% collected in the month of sale to receive a 5% discount * 70% collected in the first month following the sale * 8% collected in the second month following the sale * The balance is written off in the third month following the month of sale Complete the Debtors' Collection Schedule for August 2023. DEBTORS' COLLECTION SCHEDULE FOR AUGUST 2023 | CREDIT SALES | AUGUST | |---|---| | May | 42,000 | | | June | 49,200 | | | July | 43,200 | | | August | 33,600 | |
Answer (1)
To answer the question, we'll address each part step-by-step:
Calculate the amount for bad debts that will be written off in September 2023.
According to the information provided, any outstanding balance from credit sales is written off in the third month after the month of sale. Therefore, we need to consider the credit sales from May, as they will be written off in September.
May Credit Sales: R 42,000
Collection Pattern: 20% in May, 70% in June, 8% in July, and the balance written off in September.
Calculate how much is collected:
20% collected in May = 0.20 * 42,000 = R 8,400 (with a 5% discount: 0.95 * 8,400 = R 7,980)
70% collected in June = 0.70 * 42,000 = R 29,400
8% collected in July = 0.08 * 42,000 = R 3,360
Total collected = R 7,980 (May) + R 29,400 (June) + R 3,360 (July) = R 40,740
Bad debts to be written off = R 42,000 - R 40,740 = R 1,260
Therefore, R 1,260 will be written off as bad debts in September 2023.
Complete the Debtors' Collection Schedule for August 2023.
We need to calculate collections from May, June, July, and August credit sales for August 2023.
May Sales (R 42,000): All collections are completed by July, so there's nothing to collect in August.
June Credit Sales (R 49,200):
8% collected in August: 0.08 * 49,200 = R 3,936
July Credit Sales (R 43,200):
70% collected in August: 0.70 * 43,200 = R 30,240
August Credit Sales (R 33,600):
20% collected in August with a 5% discount: 0.20 * 33,600 = R 6,720 (with discount = 0.95 * 6,720 = R 6,384)
Total Collections in August = R 3,936 (June) + R 30,240 (July) + R 6,384 (August) = R 40,560
Here's the completed Debtors' Collection Schedule for August 2023:
CREDIT SALES
AMOUNT
June
3,936
July
30,240
August
6,384
Total Collection for August 2023 is R 40,560.
