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)	$470,000	$670,000	$230,000	$1,370,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 65% 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 $400,000, and March sales totaled $430,000.

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

1
	April	May	June	Total
February Sales	40000			40000
March sales	279500	43000		322500
April sales	117500	305500	47000	470000
May sales		167500	435500	603000
June sales			57500	57500
Total cash collections	437000	516000	540000	1493000
2
May sales uncollected	67000	=670000*10%
June sales uncollected	172500	=230000*75%
Accounts Receivable at June 30	239500
Workings:
	April	May	June
February Sales	=400000*10%
March sales	=430000*65%	=430000*10%
April sales	=470000*25%	=470000*65%	=470000*10%
May sales		=670000*25%	=670000*65%
June sales			=230000*25%