Question

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 60% 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 $340,000, and March sales totaled $370,000. 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?

Answer 1

Part of the 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:

                                                     April       May        June           Total

Budgeted sales (all on account) $310,000 $510,000 $160,000 $980,00

Answer:

1. A Schedule of Expected Cash Collections from Sales:

                                            April          May        June           Total for the

                                                                                                Quarter

25% sales month           $77,500    $127,500   $40,000     $245,000

60% 2nd month            222,000      186,000   306,000         714,000

15%  3rd month                51,000       55,500      46,500        153,000

Total cash collections $350,500  $369,000 $392,500     $1,112,000

2. Accounts Receivable balance on June 30th:

Total beginning balance      $328,500

Total quarter sales               $980,000

Total due from customers $1,308,500

Cash receipts for quarter    $1,112,000

Balance on June 30th          $196,500

Explanation:

a) Data and Calculations:

               Feb.         Mar.            April          May          June       Total for the

                                                                                                       Quarter

Sales   $340,000  $370,000 $310,000 $510,000  $160,000  $980,00

Cash:

25% sales month                    $77,500   $127,500   $40,000  $245,000

60% 2nd month     204,000  222,000     186,000   306,000     714,000

15%  3rd month                          51,000      55,500     46,500     153,000

Total cash collections          $350,500  $369,000 $392,500 $1,112,000

b) Account Receivable balance

April 1, Beginning balance       $51,000 from February

April 1, Beginning balance    $277,500 from March

Total beginning balance       $328,500

Total quarter sales                $980,000

Total due from customers $1,308,500

Cash receipts for quarter    $1,112,000

Balance on June 30th          $196,500

c)  The accounts receivable balance is the difference between the beginning balance of $328,500, the sales on account for the quarter of $1,308,500, and the cash receipts from customers for the quarter of $1,112,000.  This gives a balance of $196,500, which represents 75% of June sales of $120,000 and 15% of May Sales of $76,500.

Answer 2

1. Total cash collections is = $1,112,000

2.  Accounts Receivable balance on June 30th $196,500

Calculation of Cash collections from sales

Silver Company makes a creation that is very popular as a Mother’s Day gift. Therefore, peak sales occur in May of each year, as indicated in the company’s sales budget for the second quarter given downward:

                                                    April       May        June           Total

Budgeted sales (all on account) $310,000 $510,000 $160,000 $980,00

Calculation of

1. A Schedule of Expected Cash Collections from Sales:

                                           April          May        June           Total for the

                                                                                                  Quarter

25% sales month           $77,500    $127,500   $40,000       $245,000

60% 2nd month            222,000      186,000   306,000           714,000

15%  3rd month               51,000       55,500     46,500           153,000

The Total cash collections $350,500  $369,000  $392,500     $1,112,000

2. Accounts Receivable balance on June 30th:

The Total beginning balance is      $328,500

Then Total quarter sales               $980,000

After that Total due from customers was $1,308,500

Then Cash receipts for the quarter of  $1,112,000

The Balance on June 30th is         $196,500

a) Now Data and also Calculations:

            Feb.         Mar.            April          May          June       Total for the

                                                                                                      Quarter

Sales   $340,000 $370,000 $310,000 $510,000  $160,000  $980,00

Cash:

25% sales month                    $77,500   $127,500   $40,000  $245,000

60% 2nd month     204,000  222,000     186,000   306,000     714,000

15%  3rd month                          51,000      55,500     46,500     153,000

Total cash collections          $350,500  $369,000 $392,500 $1,112,000

b) Now Account Receivable balance are:

April 1, Beginning balance       $51,000 from February

April 1, Beginning balance    $277,500 from March

The Total beginning balance is  $328,500

Total quarter sales                $980,000

Total due from customers $1,308,500

Cash receipts for quarter    $1,112,000

Therefore, the Balance on June 30th          $196,500

c) When The accounts receivable balance is the dissimilarity between the beginning balance of $328,500, Then the sales on account for the quarter of $1,308,500, and the cash receipts from customers for the quarter of $1,112,000. This gives a balance of $196,500, which represents 75% of June sales of $120,000 and also 15% of May Sales of $76,500.

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