Reference no: EM132676072

Papst Company is preparing its cash budget for the month of May. The following information is available concerning its accounts receivable (based on sales made to customers on open account):

Actual credit sales for March$130,000
Actual credit sales for April$160,000
Estimated credit sales for May$210,000
Estimated collections in the month of sale25%
Estimated collections in the first month after the month of sale60%
Estimated collections in the second month after the month of sale10%
Estimated provision for bad debts (made in the month of sale)5%

The firm writes off all uncollectible accounts at the end of the second month after the month of sale.

Required:

Problem a: Determine for Papst Company for the month of May:

1. The estimated cash receipts from accounts receivable collections.

2. The gross amount of accounts receivable at the end of the month (after appropriate write-off of uncollectible accounts).

3. The net amount of accounts receivable at the end of the month.

4. Recalculate requirements 1 and 2 under the assumption that estimated collections in the month of sale equal 60% and in the first month following the month of sale equal 25%

5. What are the benefits and likely costs of moving to the situation described in requirement 4?