How to Prepare a Schedule of Expected Cash Collections

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Cash collections help a company pay for its normal operations. Sales revenue is the starting point of cash collections. Companies will sell goods or services in exchange for cash and/or credit. Credit sales result in accounts receivable; this indicates a company has customers who owe it money. A company must spend time collecting these open accounts in order to receive the cash owed to it. A schedule of cash collections helps accountants determine how much cash a company can expect to collect during an accounting period.

  • Review the previous annual credit sales and accounts receivable to determine the potential bad debts. Bad debts represent unpaid accounts receivable the company will not collect.

  • Divide cash collected from credit sales by total credit sales. This provides an average collection percentage for open accounts receivable.

  • Total all credit sales for the current accounting period.

  • Multiply the figure from Step 3 by the collection percentage from Step 2. List the computed figure on the cash collection report.

  • Add total cash sales to the figure from Step 4. This represents the total cash collected for an accounting period.

  • Complete Steps 3 through 5 for each accounting period in the year. This will provide a total cash collection schedule for the entire year.

References

  • "Intermediate Accounting"; J. David Spiceland, et al.; 2007
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