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

Answer 1:

Schedule of expected cash collections from sales

	April	May	June	Total
February sales	($300,000 * 10%) = $30,000			$30,000
March sales	($330,000 * 65%) = $214,500	($330,000 * 10%) = $33,000		$247,500
April sales	($370,000 * 25%) = $92,500	($370,000 * 65%) = $240,500	($370,000 * 10%) = $37,000	$370,000
May sales		($570,000 * 25%) = $142,500	($570,000 * 65%) = $370,500	$513,000
June sales			($180,000 * 25%) = $45,000	$45,000
Total cash collection	$337,000	$416,000	$452,500	$1,205,500

Answer 2:

Accounts receivable balance on June 30th

From May sales ($570,000 * 10%)	$57,000
From June sales ($180,000 * 75%)	$135,000
Accounts receivable balance on June 30th	$192,000