Silver Company makes a product that is very popular as a Mother’s Day gift. Thus

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:

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 75% are collected in the month following sale, and the remaining 5% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $270,000, and March sales totaled $300,000.

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?

April May June Total Budgeted sales (all on account) $340,000 $540,000 $170,000 $1,050,000

Explanation / Answer

1.

2.

Accounts Receivable as on June 30th:

= $ 540,000 * 5% + $ 170,000 *80%

= $ 163,000

Note :

1. For February :  5% is collected in April

2. For March : 75% is collected in April and 5% in May

3. For April onwards: 20% in the month of Sales, 75% in the next month and 5% in the second month following sale

Collection of Credit sales Sales April May June Quarter Collection of February Sales 270,000 13,500 -    -    Collection of March Sales 300,000 225,000 15,000 -    Collection of April Sales 340,000 68,000 255,000 17,000 Collection of May Sales 540,000 -    108,000 405,000 Collection of June Sales 170,000 -    -    34,000 306,500 378,000 456,000 1,140,500

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