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)	$500,000	$700,000	$240,000	$1,440,000

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 $430,000, and March sales totaled $460,000.

Required:
1.	Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

     

2.	Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.

     

Answer 1

1)
	Schedule of expected cash collection
			April	May	June	Total
	Budgeted Sales (on accounts)		$ 5,00,000	$ 7,00,000	$          2,40,000	$      14,40,000
	Cash Collection from:
	Last 2 month's sales		$ 86,000	$ 92,000	$          1,00,000	$        2,78,000
	Last month's Sales		$ 2,76,000	$ 3,00,000	$          4,20,000	$        9,96,000
	Current Month's Sales		$ 1,00,000	$ 1,40,000	$ 48,000	$        2,88,000
	Total		$ 4,62,000	$ 5,32,000	$          5,68,000	$      15,62,000
Working:
	Month		Last 2 month's sales	Cash collection @ 20%	Last month's Sales	Cash collection @ 60%	Current Month's Sales	Cash collection @ 20%
	April		$             4,30,000	$              86,000	$          4,60,000	$        2,76,000	$        5,00,000	$ 1,00,000
	May		$             4,60,000	$              92,000	$          5,00,000	$        3,00,000	$        7,00,000	$ 1,40,000
	June		$             5,00,000	$           1,00,000	$          7,00,000	$        4,20,000	$        2,40,000	$      48,000
2)
	Accounts Receivable as on June 30			$ 3,32,000
Working:
	Month		Last month's Sales	Balance Receivable @ 20% (1)	Current Month's Sales	Balance Receivable @ 80% (2)		Total (1) + (2)
	June		$             7,00,000	$           1,40,000	$          2,40,000	$        1,92,000		$ 3,32,000