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Suppose that a company has the following accounts receivable collection pattern: Paid in the month of sale 25% Paid in the month following sale 75% All sales are on credit. If credit sales for January and February are $250,000 and $120,000 respectively, the cash collection for February is:

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Answer: $152,500

Explanation:

The cash collection for February would be:

  • 25% of the sales in January as 25% are collected in the following months
  • 75% of February credit sales as 75% are collected in the month of sale

= (25% * 250,000) + (75% * 120,000)

= 62,500 + 90,000

= $152,500

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