Question

EXERCISE 8–1 Schedule of Expected Cash Collections LO8–2 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) . . . . . . . . .	$300,000		$500,000		$200,000		$1,000,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 70% 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 $230,000, and March sales totaled $260,000. Required:

1. Using Schedule 1 as your guide, 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

Solution 1:
Schedule of expected cash collection - Silver Company
Particulars	April	May	June	Total
Feburary Sales	23,000			23,000
March Sales	1,82,000	26,000		2,08,000
April Sales	60,000	2,10,000	30,000	3,00,000
May Sales		1,00,000	3,50,000	4,50,000
June Sales			20,000	20,000
				-
Total cash collections	2,65,000	3,36,000	4,00,000	10,01,000
Working
Particulars	April	May	June
Feburary Sales	=230000*10%
March Sales	=260000*70%	=260000*10%
April Sales	=300000*20%	=300000*70%	=300000*10%
May Sales		=500000*20%	=500000*70%
June Sales			=200000*10%
2) Accounts receivable as on 30th June = June Sale*(1-Percentage collected) + May Sale *(1-Percentage collected)
Accounts receivable as of that date = $200,000*(1-20%) + 500,000*(1-(20%+70%))
Accounts receivable as of that date = $ 210,000