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

Schedule of Expected Cash Collections
	April	May	June	Total
Feb Sales	23,000			23,000
Mar Sales	182,000	26,000		208,000
Apr Sales	60,000	210,000	30,000	300,000
May Sales		100,000	350,000	450,000
Jun Sales			40,000	40,000
Total Cash collections	265,000	336,000	420,000	1,021,000
Accounts receivables balance on June 30 is as follows:
May Sales 500,000*10%	50,000
June Sales 200,000*80%	160,000
Hence, Accounts receivables on June 30	210,000