Answer to Question #140741 in Other for Kennedy Mumba

Question

The following information was extracted from ABC Ltd’s financial statements for the year ended 31 December 2019.

a. Sales on 30 November 2019 were K100 million and K110 million on 31 December 2019. For the year 2020, sales are expected to double at a constant monthly rate.

b. 80% of the sales made are on account; the remainder on cash.

c. From past experience, 5% of the receivables have turned out to be irrecoverable.

d. Credit customers pay as follows:

i. 75% in the month following the sale;

ii. 15% two months after the sale month.

e. Inventory levels are maintained at 20% of the following month’s sales.

f. Accounts payables are at settled at 30 days after purchase.

Required:

i. Prepare a collections schedule for the three-month period from January to March 2020.

Answer 1

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