Splash Yogurt specializes in gourmet frozen yogurt Sales est

Splash Yogurt specializes in gourmet frozen yogurt. Sales estimates for the next two quarters are $900 for 1Q and $1,100 for 2Q. All sales are made on credit. The company’s beginning accounts receivable balance is $300. The company’s Days in Receivables is 30 days.

Cash collections from Accounts Receivables during 1Q would be estimated to be: a. $300 b. $600 c. $583 d. $900 e. $1,033

Solution

Beginning Accounts Receivable = $300
Sales for Quarter 1 = $900
Sales for Quarter 2 = $1,100

Days in Receivables = 30 days

Collection from Current Quarter Sales = (90 - Days in Receivables) / 90
Collection from Current Quarter Sales = (90 - 30) / 90
Collection from Current Quarter Sales = 60/90
Collection from Current Quarter Sales = 2/3

Collection in Quarter 1 = Beginning Accounts Receivable + 2/3 * Sales for Quarter 1
Collection in Quarter 1 = $300 + 2/3 * $900
Collection in Quarter 1 = $300 + $600
Collection in Quarter 1 = $900