McLeod Fries, Inc. has budgeted sales for June and July at $670,000 and $770,000, respectively....

Question:

McLeod Fries, Inc. has budgeted sales for June and July at $670,000 and $770,000, respectively. Sales are 85% credit, of which 60% is collected in the month of sale and 40% is collected in the following month.

What is the budgeted Accounts Receivable balance on July 31?

a. $308,000

b. $261,800

c. $227,800

d. $654,500

Accounts Receivable:

When companies sell goods and services on credit, they record the amounts to be collected from customers at a later date with a debit entry to an account titled "accounts receivable." This is a current asset account as management expects to collect receivables within a one year period. When receivables are collected, the cash account is debited and receivables is credited.

Answer and Explanation:

The budgeted accounts receivable balance is equal to the 40% of uncollected credit sales for the month.

July Sales $770,000
Credit Sales Percentage x 85%
July Credit Sales $654,500
Percentage Collected in the Following Month x 40%
July Accounts Receivable $261,800

The correct answer is b. $261,800


Learn more about this topic:

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Accounts Receivable: Definition, Process & Examples

from Accounting 101: Financial Accounting

Chapter 7 / Lesson 1
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