Question

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

	April	May	June	Total
Budgeted sales (all on account)	$300,000	$500,000	$200,000	$1,000,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

Answer 1

Solution

Schedule of Expected Cash Collections
	April	May	June	Total
February Sales	$ 62,000			$ 62,000
March Sales	$ 204,000	$ 68,000		$ 272,000
April Sales	$ 60,000	$ 210,000	$ 30,000	$ 300,000
May Sales		$ 100,000	$ 350,000	$ 450,000
June Sales			$ 40,000	$ 40,000
Total Cash Collection	$ 326,000	$ 378,000	$ 420,000	$ 1,124,000

.

Total Receivables at June 30

$ 210,000

Working

	April	May	June
February Sales	=310000*20%
March Sales	=340000*60%	=340000*20%
April Sales	=300000*20%	=300000*70%	=300000*10%
May Sales		=500000*20%	=500000*70%
June Sales			=200000*20%

.

Accounts Receivables Balance
Balance of may sales	(10% of sale)	$ 50,000
Balance of June Sale	(80% of sale)	$ 160,000
Total Receivables at June 30		$ 210,000