From past experience, the company has learned that 20% of a month’s sales are co

Question

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. May sales totaled $430,000, and June sales totaled $540,000.

Prepare a schedule of expected cash collections from sales, by month and in total, for the third quarter.

     

Assume that the company will prepare a budgeted balance sheet as of September 30. Compute the accounts receivable as of that date. (Do not round intermediate calculations.)

     

Midwest Products is a wholesale distributor of leaf rakes. Thus, peak sales occur in August of each year as shown in the company’s sales budget for the third quarter, given below:

Explanation / Answer

May June July August September Sales          430,000          540,000          600,000          900,000          500,000 Collection in current month @20%            86,000          108,000          120,000          180,000          100,000 Collection in following month @70%          301,000          378,000          420,000          630,000 Collection in second month following sale @10%            43,000            54,000            60,000 Account receivable          900,000 10%            90,000          500,000 80%          400,000 Total as on 30 Sep          490,000

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