Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 47

Budgeting Cash Receipts: Cash Discounts Allowed on Receivables Yeopay Plumbing Supply accepts bank charge cards and offers established plumbers charge accounts with terms of 1/eom, n/45. Yeopay’s experience is that 25 percent of its sales are for cash and bank credit cards. The remaining 75 percent are on credit. Of the cash sales, 40 percent pay cash and the remaining 60 percent pay with bank credit cards. Yeopay receives payments from the bank on credit card sales at the end of the day. However, Yeopay has to pay 3 percent for these services. An aging schedule for accounts receivable shows the following pattern on credit sales:

20	percent pay in the month of sale
50	percent pay in the first month following the sale.
15	percent pay in the second month following the sale.
12	percent pay in the third month following the sale.
3	percent are never collected.

All accounts not paid by the end of the second month following the month of sale are considered overdue and are subject to 2 percent monthly late charge. Yeopay has prepared the following sales forecasts:

June	$60,000
July	80,000
August	90,000
September	96,000
October	88,000

Required

1. Prepare a schedule of cash receipts for September.

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2. What is the appropriate accounting treatment for the bank service fees and the cash discounts allowed on collection of receivables?

Step 1 of 2

1.

Schedule of Receipts: