Question

The LaGrange Corporation had the following budgeted sales for the first half of the current year:

		Cash Sales		Credit Sales
January	$	60,000	$	160,000
February	$	65,000	$	180,000
March	$	44,000	$	140,000
April	$	39,000	$	124,000
May	$	49,000	$	210,000
June	$	90,000	$	180,000

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:

Collections on sales:

50% in month of sale

45% in month following sale

5% in second month following sale

The accounts receivable balance on January 1 of the current year was $74,000, of which $50,000 represents uncollected December sales and $24,000 represents uncollected November sales.

What is the budgeted accounts receivable balance on May 31?

Answer 1

Collection pattern = 50% in the month of sale, 45% in the month following the sale and 5% in the second month following the sale.

Of April sales 50% are collected in May, 45% are collected in May and 5% will be collected in June which are Accounts receivable at the end of May.

Of May sales, 50% are collected in May and the remaining 50% (45%+5%) will be collected in June and July which are Accounts receivable at the end of May.

Silver Company

Accounts receivable at June 30

April sales	$6,200 ($124,000*5%)
May sales	$105,000 ($210,000*50%)
Total accounts receivable at May 30	$111,200