On March 31, 2007, Mike\'s Bike Shop had outstanding accounts receivable of $17,

Question

On March 31, 2007, Mike's Bike Shop had outstanding accounts receivable of $17,500. Mike's sales are roughly evenly split between credit and cash sales, with the credit sales collected half in the month after the sale and the remainder 2 months after the sale. Historical and projected sales for the bike shop are given: Month Sales Month Sales January $15,000 March $25,000 February 20,000 April (projected) 30,000 a. Under these circumstances, what should the balance in accounts receivable be at the end of April? b. How much cash did Mike's real

Explanation / Answer

Initial Accounts receivables = $ 17,500

Revenue is received in cash & equally Credit.

Hence Cash received in same month = Sales/2,

Cash received in next month = Credit/2 = Sales/4,

Cash received 2 months later =  Sales/4

Hence cash realized in April from collections and sales = Feb Sales/4 + March Sales/4 + April Sales/2 = $20,000/4 + $25,000/4 + $30,000/2 = $ 26,250 (Answer b .. $15,000 from sales and $ 11,250 from collections)

Net Cash receivables = Initial payment receivables + Sales - Cash received

= $ 17,500 + $30,000 - $ 26,250 = $ 21,250 receivable at the end of April = ANswer a)

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