VCE Accounting Unit 4

1. 21.3
BUDGETING FOR
DEBTOR RECEIPTS

2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for discounts and bad debts… E.g. in 2015 a firm expects:
 To make credit sales of $50,000 (plus $5,000 GST)
 Discounts given to debtors to equal 5% of total owing from credit sales
 Bad debts to be 5% of total owing from credit sales
21.3 BUDGETING FOR DEBTOR
RECEIPTS
The GST exclusive
amount
$50,000
Do discounts and bad debts apply to…
or…
The GST inclusive
amount
$55,000

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Credit sales are $50,000 plus $5,000 GST
 Discount expenses will be 5% of total owing from credit sales
Discounts and bad debts apply to the GST inclusive amount
$50,000
or…
$55,000
5% x ?=
=
$2,500
$2,750
21.3 BUDGETING FOR DEBTOR
RECEIPTS

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for discounts and bad debts… E.g. in 2015 a firm expects:
 To make credit sales of $50,000 (plus $5,000 GST)
 Discounts given to debtors to equal 5% of credit sales
 Bad debts to be 5% of credit sales
21.3 BUDGETING FOR DEBTOR
RECEIPTS
The GST exclusive
amount
$50,000
Do discounts and bad debts apply to…
or…
The GST inclusive
amount
$55,000

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Credit sales are $50,000 plus $5,000 GST
 Discount expenses will be 5% of credit sales
Discounts and bad debts apply to the GST inclusive amount
$50,000
or…
$55,000
5% x ?=
=
$2,500
$2,750
21.3 BUDGETING FOR DEBTOR
RECEIPTS

6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Budgeting for collections from debtors…
 A budget is being prepared for July 2015
 Credit sales figures are as follows:
May June July
Month Credit
Sales $
GST $ Total $Month Credit
Sales $
GST $ Total $
May (actual) 10,000 1,000 11,000
Month Credit
Sales $
GST $ Total $
May (actual) 10,000 1,000 11,000
June (actual) 8,000 800 8,800
Month Credit
Sales $
GST $ Total $
May (actual) 10,000 1,000 11,000
June (actual) 8,000 800 8,800
July (budgeted) 9,000 900 9,900
$11,000 $8,800 $9,900
BudgetPast events
21.3 BUDGETING FOR DEBTOR
RECEIPTS

7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Past history of the firm’s collections from debtors indicates that:
Month 0 Month +1 Month +2
80% of debtors settle their accounts in the month after sale to take
advantage of a 2% discount for prompt payment
15% of debtors settle their accounts in the second month after sale
5% of debtors will become bad debts
80% collected and
2% discount given
15% collected 5% bad debtsSale made here
21.3 BUDGETING FOR DEBTOR
RECEIPTS

8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Month Credit
Sales $
GST $ Total $
May (actual) 10,000 1,000 11,000
BudgetPast events
Month 0 Month +1 Month +2
80% collected and
2% discount given
15% collected 5% bad debtsSale made here
May June July
$11,000 80% - 2% 15%
$11,000
x 78%
= $8,580
$11,000
x 80%
= $8,800
x 98%
= $8,624
or…
$8,624
$11,000
x 15%
= $1,650
$1,650
5%
$550
$11,000
x 5%
= $550
21.3 BUDGETING FOR DEBTOR
RECEIPTS

9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
Ex21.1 X
Ex21.2 X