Gianna runs a small business and is attempting to create a Cash Collections Budget, so she can determine her income for the first quarter of next year. She has an accounts receivable balance of $25,000 at the end of this year and expects her ist quarter sales for next year to be $75,000. If her standard is to collect 50% of sales in the quarter in which it was earned, how much will her Total Cash Collections be for Quarter 1 of next year? (a) $25,000 (b) $75,000 (c) $62,500 (d) $67,250

Question

Gianna runs a small business and is attempting to create a Cash Collections Budget, so she can determine her income for the first quarter of next year. She has an accounts receivable balance of  $25,000 at the end of this year and expects her ist quarter sales for next year to be $75,000. If her standard is to collect 50% of sales in the quarter in which it was earned, how much will her Total Cash Collections be for Quarter 1 of next year? (a) $25,000 (b) $75,000 (c) $62,500 (d) $67,250

Bytelearn · Accepted Answer

Calculate Sales Collection: Calculate the amount collected from next year's first quarter sales. Gianna expects her first quarter sales for next year to be $75,000. According to her standard, she will collect 50% of these sales in the quarter in which it was earned. So, we calculate 50% of $75,000. $75,000 * 0.50 = $37,500Add to Accounts Receivable: Add the amount collected from next year's sales to the accounts receivable balance from the end of this year. Gianna has an accounts receivable balance of $25,000 at the end of this year. We add this to the amount collected from next year's sales. $37,500 (from Step 1) + $25,000 = $62,500

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