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)	$480,000	$680,000	$260,000	$1,420,000

From past experience, the company has learned that 30% of a month’s sales are collected in the month of sale, another 60% 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 $410,000, and March sales totaled $440,000.

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
February sales	$     41,000			$       41,000
March sales	$ 2,64,000	$        44,000		$   3,08,000
April sales	$ 1,44,000	$     2,88,000	$           48,000	$   4,80,000
May sales		$     2,04,000	$       4,08,000	$   6,12,000
June sales			$           78,000	$       78,000
Total cash collected	$ 4,49,000	$     5,36,000	$       5,34,000	$ 15,19,000
Accounts receivable balance on June 30	=	($680000 X 10%) + ($260000 X 70%)
	=	$     2,50,000
Workings:
	February	March	April	May	June
Sales	$ 4,10,000	$     4,40,000	$       4,80,000	$   6,80,000	$   2,60,000