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)	$330,000	$530,000	$210,000	$1,070,000

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 $260,000, and March sales totaled $290,000.

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

Working Note:1
		February	March	April	May	June
	Sales	$           2,60,000	$         2,90,000	$         3,30,000	$           5,30,000	$           2,10,000
	25% collected in the month of Sales	$               65,000	$            72,500	$            82,500	$           1,32,500	$               52,500
	60% Collected in the Month of following sales		$         1,56,000	$         1,74,000	$           1,98,000	$           3,18,000
	15% collected in the second month following sales			$            39,000	$               43,500	$               49,500
	Total Cash collected on credit sales	$               65,000	$         2,28,500	$         2,95,500	$           3,74,000	$           4,20,000
	Pening Account Receivable				$               79,500	$           1,57,500
SOLUTION: 1
	SILVER COMPANY
	CASH COLLECTION BUDGET
	FOR THE MONTH OF SECOND QUARTER
		April	May	June	Total Quarter
	April Cash Collection:
	15% of February Sales	$               39,000			$               39,000
	60% of March Sales	$           1,74,000			$           1,74,000
	25% of April Sales	$               82,500			$               82,500
	May Cash Collection:
	15% of March Sales		$            43,500		$               43,500
	60% of April Sales		$         1,74,000		$           1,74,000
	25% of May Sales		$            82,500		$               82,500
	June Cash Collection:
	15% of April Sales			$            49,500	$               49,500
	60% of May Sales			$         3,18,000	$           3,18,000
	25% of June Sales			$            52,500	$               52,500
	Total Cash Collection	$           2,95,500	$         3,00,000	$         4,20,000	$         10,15,500
SOLUTION: 2
	Calcuation of Account Receivable of June
	Account receivable agaisnt May Sales	$               79,500
	Account receivable agaisnt June Sales	$           1,57,500
	Total	$           2,37,000
Answer = Account Receivable = $ 237,000