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)	$350,000	$550,000	$190,000	$1,090,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 5% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $280,000, and March sales totaled $310,000.

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
	April	May	June	Total
February sales	$      70,000			$ 70,000
March sales	$    217,000	$      77,500		$294,500
April sales	$      17,500	$    245,000	$      87,500	$350,000
May sales		$      27,500	$    245,000	$272,500
June sales			$        9,500	$    9,500
Total cash collections	$    304,500	$    350,000	$    342,000	$996,500
2
May sales uncollected	$      27,500	550000*5%
June sales uncollected	$    142,500	190000*75%
Accounts Receivable at June 30	$    170,000
Workings:
	April	May	June
February sales	280000*25%
March sales	310000*70%	310000*25%
April sales	350000*5%	350000*70%	350000*25%
May sales		550000*5%	350000*70%
June sales			190000*5%