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)	$420,000	$620,000	$240,000	$1,280,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 65% 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 $350,000, and March sales totaled $380,000.

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

Requirement 1
Schedule of Cash collections for the second Quarter
	Sales	April	May	June	Total
Collection against Feburary Sales	3,50,000	52,500			52,500
		(350,000*15%)
Collection against March Sales	3,80,000	2,47,000	57,000		3,04,000
		(380,000*65%)	(380,000*15%)
Collection against April Sales	4,20,000	84,000	2,73,000	63,000	4,20,000
		(420,000*20%)	(420,000*65%)	(420,000*15%)
Collection against May Sales	6,20,000		1,24,000	4,03,000	5,27,000
			(620,000*20%)	(620,000*65%)
Collection against June Sales	2,40,000			48,000	48,000
				(240,000*20%)
Total Collections		3,83,500	4,54,000	5,14,000	13,51,500
Requirement 2
Accounts receivable as of June 30
Accounts Receivable against May sales		(620,000-527,000)	93,000
Accounts Receivable against May sales		(240,000-48,000)	1,92,000
Accounts receivable as of June 30			2,85,000