Question

Sequoia Furniture Company’s sales over the past three months, half of which are for cash, were as follows:

March	April	May
$416,000	$666,000	$536,000

a. Assume that Sequoia’s collection period is 60 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?

	Cash receipts Accounts receivable balance

b. Now assume that Sequoia’s collection period is 45 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?

	Cash receipts Accounts receivable balance

Answer 1

a.

cash receipts	476,000
accounts receivable	601,000

working:

cash receipts = 50% * may sales =>50%*536,000 =>268,000

add: 50% of march sales received in may =>50%*416,000 =>208,000

total cash receipts =>$476,000

accounts receivable = 50% of may sales + 50% of april sales

=> (50%*536,000) + (50%*666,000) =>$601,000.

b.

cash receipts	601,000
accounts receivable	268,000

working:

cash receipts = (50% * may sales ) +(50% of april sales)

=>268,000+ 333,000=>$601,000

accounts receivable = 50% of may sales =>$268,000