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)	$440,000	$640,000	$220,000	$1,300,000

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 $370,000, and March sales totaled $400,000.

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	$       37,000.00			$        37,000.00
March Sales	$   2,40,000.00	$         40,000.00		$    2,80,000.00
April Sales	$   1,32,000.00	$     2,64,000.00	$         44,000.00	$    4,40,000.00
May Sales		$     1,92,000.00	$      3,84,000.00	$    5,76,000.00
June Sales			$         66,000.00	$        66,000.00
Total Cash Collection	$   4,09,000.00	$     4,96,000.00	$      4,94,000.00	$ 1,399,000.00

Accounts Receivables Balance
Balance of may sales	(10% of sale)	$         64,000.00
Balance of June Sale	(70% of sale)	$     1,54,000.00
Total balance of Receivables		$     218,000.00