From past experience, the company has learned that 25% of a month\'s sales are c

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 fol owing sale, and the remaining 15% are collected in the second month following sale Bad debts are negligible and can be ignored. February sales totaled $420,000. and March sales totaled $450,000. 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.

Explanation / Answer

1. cash collections of february sales = 15% of total sales in april = 15% of 420,000 = 63,000

cash collections of march sales = 60% in april and 15% in may. april = 60% of 450,000 = 270,000 and in may = 15% of 450,000 = 67,500.

april sales = 490,000. april collections = 25% of 490,000 = 122,500. May collections = 60% of 490,000 = 294,000 and june collections = 15% of 490,000 = 73,500.

may sales = 690,000. may collection = 25% of 690,000 = 172,500 and june collection = 60% of 690,000 = 414,000.

june sales = 220,000. june collection = 25% of 220,000 = 55,000.

2. Accounts receivables for May = Total sales of May*(1-% already collected) = 690,000*(1-[25%+60%])

= 690,000*15% = 103,500

Accounts receivables for June = total sales of june* (1-% already collected) = 220,000*(1-25%) = 220,000*75% = 165,000.

April May June Total February sales 63,000 0 0 63,000 March sales 270,000 67,500 0 337,500 April sales 122,500 294,000 73,500 490,000 May sales 0 172,500 414,000 586,500 June sales 0 0 55,000 55,000 Total cash collections 455,500 534,000 542,500 1,532,000

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