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)	$370,000	$570,000	$180,000	$1,120,000

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 $300,000, and March sales totaled $330,000.

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.

Particulars	April	May	June	Total
Collection from February sales ($300,000*10%)	30000			30000
Collection from March sales ($330,000*65%), ($330,000*10%)	214500	33000		247500
Collection from April sales	92500	240500	37000	370000
Collection from May sales		142500	370500	513000
Collection from June sales			45000	45000
Expected cash collections from sales	$337,000	$416,000	$452,500	$1,205,500

2. Accounts receivable balance on June 30th = May sales x 10% + June Sales *75%

=570000*10%+180000*75%

= $192,000