Question

Use the following information to answer the next three parts:

Month	Credit Sales
January	$100,000
February	$120,000
March	$140,000
April	$160,000
May	$105,000
June	$ 50,000

The Bell Heim Company began operations on January 1 and has the following credit sales for the first six months of operation:

Throughout this entire period, the firm’s credit customers maintained a constant payments pattern asfollows: 30% paid in the month of sales, 50% paid in the first month following the sale, and 20% paid in the second month following the sale.

a) Assume 90 days per calendar quarter. What is the days sales outstanding (DSO) for the first quarter and second quarter?

b) Construct an aging schedule as of June 30. Use account ages of 0-30, 31-60, and 61-90 days.

c) Construct an uncollected balances schedule for the second quarter as of June 30

Answer 1

Part(a)

		Collections
Month	Credit Sales	January	February	March	Balance
January	$100,000	30,000	50,000	20,000	-
February	$120,000		36,000	60,000	24,000
March	$140,000			42,000	98,000
Total	$360,000	30,000	86,000	122,000	122,000

Days sales outstanding (DSO) for the first quarter = Outstanding x 90 / First quarter sales = 122,000 x 90 / 360000 = 30.50 days

		Collections
Month	Credit Sales	April	May	June	Balance
April	$160,000	48,000	80,000	32,000	-
May	$105,000		31,500	52,500	21,000
June	$50,000			15,000	35,000
Total	$315,000	48,000	111,500	99,500	56,000

Days sales outstanding (DSO) for the second quarter = Outstanding x 90 / Second quarter sales = 56,000 x 90 / 315000 = 16.00 days

Part (b)

Ageing schedule	$	Reference
0 - 30 days	35,000	Pending collection from June sales
31 - 60 days	21,000	Pending collection from May sales
61 - 90 days	0	Pending collection from April sales
Total	56,000

Part (c)

Uncollected balance	$	Remarks
Opening balance on 1st Apr	122,000	Balance collection at the end of first quarter
[+] Credit sales during second quarter	$315,000	Credit sales of Apr + May + June
[-] Collections during second quarter of balances from first quarter	122,000	All pending collections from first quarter sales will be collected
[-] Collections during second quarter of sales in the second quarter	259,000	Collections during April, May & June in the table in part (a)
Closing balance	56,000