In a cash budget, each credit sale appears in receipts once, in the month the customer pays. Count the cash part of this month’s sales plus the credit part of earlier months that is collected this month, and nothing else.
This lesson is part of profit, cost and cash are different questions. The full layout is taught in preparing a simple cash budget.
Worked example: a stationery shop
An invented shop sells goods as follows. 40% of each month’s sales are cash, and 60% are on credit, collected the month after.
| RM | Jan | Feb | Mar |
|---|---|---|---|
| Sales | 12 000 | 15 000 | 18 000 |
| Cash sales (40%) | 4 800 | 6 000 | 7 200 |
| Credit sales (60%) | 7 200 | 9 000 | 10 800 |
Feb receipts = cash sales in Feb + January’s credit sales collected in Feb = 6 000 + 7 200 = RM13 200.
Mar receipts = 7 200 + February’s credit 9 000 = RM16 200.
Follow January’s credit sales of RM7 200: they show up once, in February receipts, and never again.
The mistake that counts twice
Some students write February receipts as total February sales 15 000 plus the collection of 7 200, which gives RM22 200. That treats February’s credit sales as cash in February, and then adds January’s credit as well.
Two tests catch it. First, February’s credit sales of RM9 000 have not been paid yet. Second, the 7 200 collected is January’s credit, so it was never in February’s cash sales.
Check yourself
Sales are May RM20 000 and June RM25 000. Thirty percent of sales are cash and 70% are collected the month after. Find June receipts.
Answer
Cash sales in June = 30% × 25 000 = RM7 500.
Collection of May’s credit sales = 70% × 20 000 = RM14 000.
June receipts = 7 500 + 14 000 = RM21 500.
June’s credit sales of RM17 500 are not included, because they arrive in July.
What to study next
Test the whole series in the integrated practice set. You can also compare timing effects in the cash profit and transaction timing explorer.
If you want a teacher to go through your budget working, see online one-to-one Accounting tuition.