Skip to content
SPM Tuition
Lesson · Principles of Accounting

Cash budgets without double counting receipts

Your receipts line keeps coming out too high, and you cannot see why.

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.

Common questions

How do I split cash and credit sales?

Apply the percentages given in the question to each month's sales. The cash part is received in the month of sale. The credit part is received later, in the month the question says debtors pay.

Why is a credit sale not counted in the month of sale?

Because no cash arrives in that month. The sale is in profit, but the cash budget only records cash. It appears once, when the debtor pays.

Are discounts for early payment included?

If the question gives a discount, reduce the collection by that amount before adding it. Follow the wording exactly, because the discount changes the cash actually received.

How can I check my receipts?

Over the life of a sale, total cash received should equal the sale amount, never more. If a month's receipts plus later collections exceed sales, a credit sale has been counted twice.

If receipts totals keep overshooting, a one-to-one Accounting teacher can watch you build the line and show where a credit sale sneaks in twice.

  • Online one-to-one lessons for your child with an experienced teacher.
  • Your first class is a one-hour trial, from RM50. The fee is agreed before you book.
  • Happy with the teacher? Continue with lessons of about 1.5 hours. If not, ask for another teacher.