For the purpose of a cash receipts budget, we are not primarily thinking terms of sales in a month, but we see the amount of cash received in a month comes from multiple months. That cash received will come from sales in various months.

As an example, let's assume sales are as follows:

October 2010 - 75,000

November 2010 - 90,000

December 2010 - 100,000

January 2011- 90,000

February2011 - 100,000

March - 2011- 110,000

April- 2011- 120,000

May- 2011 -130,000

Let's further assume as we look to project cash receipts for May that cash sales are 10% of total sales for each month. And we expect the following aging pattern to remain constant for credit sales;

Invoices Paid Within 30 day75%

Invoices Paid Between 31 and 60 days 15%

Invoices Paid Between 61 and 90 days 7%

Invoices Paid Between 91 and 120 days 3%

With all of this, what is our forecast of cash receipts expected in May? First, let's identify the sources of cash for May, that is, from what sales will the cash be received.

First, we will have cash sale in May, which are 10% of May total sales.

Next, we will have 75% of April credit sales,

Then, we will have 15% of March credit sales.

Then we will have 7% of February credit sales.

And lastly, we have 3% of January credit sales.

Yes, that is a lot of calculations just to find one month's cash receipts, but that the process we go through.

So now let's put some numbers to it for the forecasted May cash receipts.

13,000 May cash sales - 10% of $130,000.

81,000 April credit sales ($120,000 x 90%) x 75%

14,850 March credit sales ($110,000 x 90%) x 15%

6,300 February credit sales ($100,000 x 90%) x 7%

2,430 January credit sales ($90,000 x 90%) x 3%

So our total budgeted cash receipts for May are $117,580. Please note that is this problem, we have five sources of cash receipts in May. Or another way to say it, sales from 5 different months are paid for in May. Also please note that the number of sources (months) you have in a problem will be based on the AR aging historical schedule given to you in the problem.

We need to do this for each month in the year to forecast if we will have enough cash on hand to cover our cash disbursements. When we combine the cash receipts budget with the cash disbursements budget, we then cash see predicted cash shortages. When we see a predicted cash shortage, it is our job. It is our job to locate additional funds to cover the cash shortage.

For the above practice problem, what is the total budgeted cash receipts for February