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)	$380,000	$580,000	$200,000	$1,160,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 20% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $310,000, and March sales totaled $340,000.

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
Total Sales	380,000	580,000	200,000	1,160,000
Schedule of Expected Cash Collection
	April	May	June	Total
February Sales	62,000			62,000
March sales	204,000	68,000		272,000
April Sales	76,000	228,000	76,000	380,000
May Sales		116,000	348,000	464,000
June Sales			40,000	40,000
Total cash collection	342,000	412,000	464,000	1,218,000
Accounts Receivable balance, June 30
Out of MAY SALES	116,000
Out of June Sales	160,000
Total Accounts receivable as on June 30	276,000