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) $430,000 $630,000 $200,000 $1,260,000 From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $360,000, and March sales totaled $390,000. 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	$ 54,000			$ 54,000
March Sales	$ 234,000	$ 58,500		$ 292,500
April Sales	$ 107,500	$ 258,000	$ 64,500	$ 430,000
May Sales		$ 157,500	$ 378,000	$ 535,500
June Sales			$ 50,000	$ 50,000
Total Cash Collection	$ 395,500	$ 474,000	$ 492,500	$ 1,362,000

.

Total Receivables at June 30

$ 244,500

Working

	April	May	June
February Sales	=360000*15%
March Sales	=390000*60%	=390000*15%
April Sales	=430000*25%	=430000*60%	=430000*15%
May Sales		=630000*25%	=630000*60%
June Sales			=200000*25%

..

Accounts Receivables Balance
Balance of may sales	(15% of sale)	$ 94,500
Balance of June Sale	(75% of sale)	$ 150,000
Total Receivables at June 30		$ 244,500