Question

ises connect EXERCISE 8-1 Schedule of Expected Cash Collections L08-2 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: May June Total April $200,000 $1,000,000 $300,000 $500,000 Budgeted sales (all on account) From past experience, the company has learned that 20% of a month's sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000. Required: 1. Using Schedule 1 as your guide, 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

1)

Particulars	Feb	March	April	May	June	Total
Total Sales (Credit)	230000	260000	300000	500000	200000	1490000
Cash collected in month of sale (20%)	230000*20% 46000	260000*20% 52000	300000*20% 60000	500000*20% 100000	200000*20% 40000	298000
70% collected in following month		230000*70% =161000	260000*70 182000	300000*70% 210000	500000*70% 350000	903000
10% collected in second month following sale			230000*10% 23000	260000*10% 26000	300000*10% 30000	79000
Total Collection in each month	46000	213000	265000	336000	420000	1280000

Cash collection for month:

April : 265000

May : 336000

June : 420000

Total : 1280000

2) Account receiveable balance on June 30 :

	April	May	June	Total
Total Sales (Credit)	300000	500000	200000	1000000
Cash collected in month of sale (20%)	60000	100000	40000	200000
70% collected in following month		210000	350000	560000
10% collected in second month following sale			30000	30000
Total Collection each month	60000	310000	420000	790000

(Taking figures from 2nd Table)

Total sales (April-June) = 1000000

Less: Amount Collected = (790000)

Remaining Balance = 210000

Balance of account receiveables on June 30th is 210000.

OR

(Taking figures from first table)

Total sales ( Feb to June) = 1490000

Less : Amount collected = (1280000)

Balance = 210000