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) $430,000 $630,000 $200,000 $1,260,000 From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $360,000, and March sales totaled $390,000. 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

In the given case, Schedule of expected cash collection is required for second quarter, the terms of cash collection are as follows: 1 25% cash collected in the month of sale 2. another 60% is collected in next month of sale 3. Another 15% is collected in 2nd month following the sale.

This means that for february sales : 15% of sales cash will be received in april. i.e $ 54000 ( 36000 * 15%) .

and March Month sales cash will be received in april and may : in april 60% i.e $ 234000 (39000 *60% ) , in May $ 58500 ( 39000 * 15%).

1.

In same way for april , may and june the cash receipts can be shown in a scheduled form as follows:

Schedule of Expected Cash Collection
	April	May	June	Total ($)
February Sales (360,000 *15%)	$54000	0	0	$54000
March Sales(390000*60%) ,(390000*15%)	$234000	$58500	0	$292500
April Sales(430000*25%) ,(430000*60%),(430000*15%)	$107500	$258000	$64500	$430000
May Sales (630000*25%) ,(630000*60%)	0	$157500	$378000	$535500
June sales (200000*25%)	0	0	$50000	$50000
Total Cash collection	$395,500	$474,000	$492,500	$1,362,000

2. What is the accounts receivable balance on June 30th?

The accounts receivable bbalance is the amount of cash which is not received yet but are receivable, in the given case,

1. The sales of May months amount to $ 630000 , but only $ 535500 is received till june so remainig of $ 94,500 (630000 - 535500 ) is accounts receivable of may month.

2. The sales of June month amount to $ 200,000 but only $50,000 is received till month end so remaining of $ 150,000 ( 200000-50000) is accounts receivable of june month.

Thus total accounts receivable outstanding as on 30th june = May months outstanding + June months outstanding  

Total accounts receivable outstanding as on 30th june = $ 94500 + $ 150000 = $ 244,500.

Thus  the accounts receivable balance on June 30th =$ 244,500