Ellis Sport Shop projects the following sales:



Ninety percent of Ellis' sales are on credit with 60 percent of receivables collected in the month after the sale and the rest of receivables collected in the second month after the sale. February sales were $60,000 and March sales were $70,000. In the past Ellis' bad debt percentage has been 0 and is expected to continue.
(a) Prepare a monthly schedule of cash receipts for April-June.
(b) What is the balance of Receivables at the end of June.


Feb Mar April May June
60,000 70,000
60% collected 50,000 60,000

I am stuck!

I don't see where you're getting your "60% collected" numbers from. Those aren't 60% of anything that I can tell.

You need to do these one step at a time, thinking very carefully about what each step is and finishing out that step. I commonly see people trying to read whole paragraphs and thinking they're going to figure out all at once what the answer is.

Set yourself up two columns, one each for Feb & March. Follow the sales through for each month, as to where it will be collected. (If these get complicated, you may need to add a month or two before and a month or two after, but this one is not one of the complicated ones. And you don't want to see the complicated one, right? :D ) So you just need Feb & March really.

List your sales for each month. (You may not need or want that on your final schedule, but I can't tell you that. Every book can have a different set-up for these, so you need an example from your book.) Now, what's the first thing it says? 90% of sales are on credit. "Credit" is receivables, right? So 90% goes into receivables and 10% of sales were for cash. That 10% cash is part of "cash receipts." So go to February and start this: figure the 10% for cash receipts and the other 90% goes into receivables. Since it wants a receivables balance at month-end, you need to be keeping track of that too. (That should not be on your schedule so keep track of that elsewhere.)

Then what's it say? That 60% is collected in the month of the sale. Well, you're not collecting the 10% cause you already have that. You're collecting 60% of what went into receivables. If you've been writing these numbers down, you have that number. So figure 60% of it and that gets collected in the same month, i.e. February. So now you have the collections that's the 60%. (While you're at it, subtract it off receivables so you can have that end-of-month balance.)

Then it says the remainder gets collected in the next month. What's the remainder? How much is left after collecting 60%? That gets collected in the next month. i.e. March. So go over to March's column and put that as part of March's collections.

You have now completely finished February. And you have Feb's ending A/R balance. Don't forget to carry that balance over to March as a beginning balance. And then do the same process with March's sales. (The 'remainder' will end up into April, but you aren't including that so you just get forget it.)

When you get done, add up all the cash collections. i.e. the sales isn't cash collections. The amount that went into A/R isn't cash collections. Which of these is cash? The 10% cash sales, the 60% of A/R collected in current month, and 40% leftovers collected for one month prior. That's your total cash receipts.

This is much easier to explain live. But give it a try.