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 65% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $350,000, and March sales totaled $380,000.

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)	$420,000	$620,000	$240,000	$1,280,000

Solution

Requirement 1 Schedule of Cash collections for the second Quarter Sales April May June Total Collection against Feburary Sales 3,50,000 52,500 52,500 (350,000*15%) Collection against March Sales 3,80,000 2,47,000 57,000 3,04,000 (380,000*65%) (380,000*15%) Collection against April Sales 4,20,000 84,000 2,73,000 63,000 4,20,000 (420,000*20%) (420,000*65%) (420,000*15%) Collection against May Sales 6,20,000 1,24,000 4,03,000 5,27,000 (620,000*20%) (620,000*65%) Collection against June Sales 2,40,000 48,000 48,000 (240,000*20%) Total Collections 3,83,500 4,54,000 5,14,000 13,51,500 Requirement 2 Accounts receivable as of June 30 Accounts Receivable against May sales (620,000-527,000) 93,000 Accounts Receivable against May sales (240,000-48,000) 1,92,000 Accounts receivable as of June 30 2,85,000