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)	$390,000	$590,000	$230,000	$1,210,000

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 $320,000, and March sales totaled $350,000.

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

Ans. 1	Schedule of Expected Cash Collection
		April	May	June	Total
	February sales	$48,000			$48,000
	March sales	$210,000	$52,500		$262,500
	April sales	$97,500	$234,000	$58,500	$390,000
	May sales		$147,500	$354,000	$501,500
	June sales			$57,500	$57,500
	Total cash collection	$355,500	$434,000	$470,000	$1,259,500
Ans. 2	May sales   ($590,000 * 15%)	$88,500
	June sales ($230,000 * 75%)	$172,500
	Total accounts receivable balance	$261,000
	Calculation of Cash collections:
		April	May	June
	February sales	$320,000 * 15%
	March sales	$350,000 * 60%	$350,000 * 15%
	April sales	$390,000 * 25%	$390,000 * 60%	$390,000 * 15%
	May sales		$590,000 * 25%	$590,000 * 60%
	June sales			$230,000 * 25%
	15% of May month's credit sales will be collected in July and 75% of June months' credit sales will be collected in
	the following month's so these are the accounts receivable.