Richards Corporation had the following budgeted sales for the first half of next

Question

Richards Corporation had the following budgeted sales for the first half of next year: Cash Sales Credit Sales January $70,000 $170,000 February $75,000 $190,000 March $50,000 $150,000 April $55,000 $150,000 May $65,000 $220,000 June $100,000 $400,000 The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled: Collections on credit sales: 45% in month of sales 40% in month of following sales 15% in second month following sales The accounts receivable balance on January 1 is $80,000. Of this amount, $44,000 represents uncollected December sales and $36,000 represents uncollected November sales. What is the budgeted accounts receivable balance on May 30? $143,500 $121,000 $187,500 $44,000

Explanation / Answer

The budgeted accounts receivable balance on May 30 include the amount what is due in May and April that the company is going to receive in the coming months, i.e.,

=55% of credit sales of May (as the company received 45% in the same month) + 15% of the credit sales of April (as the company received 45% in the same month and 40% in May, so due at the end of May is only 15%)

Thus,

The budgeted accounts receivable balance on May 30

= 55% of 220,000 + 15% of 150,000

= 121,000 + 22,500

= $143, 500

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