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) $380,000 $580,000 $200,000 $1,160,000 From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 20% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $310,000, and March sales totaled $340,000. 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

	February	March	April	May	June
Sales on Account	310,000	340,000	380,000	580,000	200,000

Cash is collected as under:

In the month of sale = 20%

In the following month= 60%

In the second following month = 20%

	April	May	June	Quarter
Cash collection from February sales	310,000 x 20% =62,000			62,000
Cash collection from March sales	340,000 x 60% = 204,000	340,000 x 20% = 68,000		272,000
Cash collection from April sales	380,000 x 20% = 76,000	380,000 x 60% = 228,000	380,000 x 20% = 76,000	380,000
Cash collection from May sales		580,000 x 20% = 116,000	580,000 x 60% = 348,000	464,000
Cash collection from June sales			200,000 x 20% = 40,000	40,000
Total	342,000	412,000	464,000	1,218,000

2.

Accounts receivable on June 30 = 80% of June sales + 20% of May sales

= 200,000 x 80% + 580,000 x 20%

= 160,000+116,000

= $276,000

Kindly comment if you need further assistance. Thanks