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)	$450,000	$650,000	$250,000	$1,350,000

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 $380,000, and March sales totaled $410,000.

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

	April	May	June	Total
Budgeted sales (all on account)	450,000	650,000	250,000	1,350,000
Schedule of expected cash collection
	April	May	June	Total
25% in the Month of sale	112,500	162,500	62,500	337,500
60% in the month following the sale	246,000	270,000	390,000	906,000
15% in the second month following sale	57,000	61,500	67,500	186,000
Total expected collections	415,500	494,000	520,000	1,429,500
2.Accounts receivable balance on June 30
15% of May Sales	97,500
75% of June Sales	187,500
Receivables balance on June 30	285,000