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?
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.
|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
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from Accounting 101: Financial AccountingChapter 7 / Lesson 1