Silver Company makes a product that is very popular as a Mot

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 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.

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

     

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

     

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:

Solution

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