Question

Verna's makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 50% are collected in the first month after sale; and 20% are collected in the second month after sale. If sales for October, November, and December were $69,000, $59,000, and $49,000, respectively, what was the budgeted receivables balance on December 31? a. $34,300.

b. $46,100.

c. $43,300.

d. $58,000.

e. Some other amount.

Answer 1

Budgeted receivables balance on December 31 would consist of 20% of November sales plus (50+20)=70% of December sales.

This is due to the fact that for October=30% has been collected in October;50% in November and 20% in December

For November=30% has been collected in November;50% in December and the remaining not collected yet.

For December=30% has been collected in December and the remaining not collected yet.

Hence budgeted receivables balance on December 31=(0.2*$59000)+(0.7*$49000)

=$46100.