Question

The Khaki Corporation has the following budgeted sales data:

The regular pattern of collection of credit sales is 40% in the month of sale, 50% in the month following sale, and the remainder in the second month following the month of sale. There are no bad debts.

The budgeted accounts receivable balance on February 28 would be:

• $250,000 

• $210,000 

• $175,000 

• $215,000

Answer 1

The budgeted accounts receivables would comprise of the balance amount (10%) for January credit sales that remains outstanding at the end of February and 60% of the February credit sales. The formula for calculating the budgeted accounts receivable on February 28 can be derived as follows:

Budgeted Accounts Receivable (February 28) = January Credit Sales*10% + February Credit Sales*60%

___________

Solution:

Using the information provided in the question, we get

Budgeted Accounts Receivable (February 28) = 400,000*10% + 350,000*60% = $250,000 (which is Option A)

________

Notes:

1) Out of the credit sales of $400,000 in the month of January, 40% will be collected in January itself and 50% will get collected in February. The balance 10% will remain outstanding at the end of February.

2) Out of the credit sales of $350,000 in the month of February, 40% will be collected in February itself, and the balance of 60% will remain outstanding at the end of February.