Ross Corporation makes all sales on account. The June 30th balance sheet balance in its accounts...

Question:

Ross Corporation makes all sales on account. The June 30th balance sheet balance in its accounts receivable is $350,000, of which $240,000 pertain to sales that were made during June. Budgeted sales for July are $1,200,000. Ross collects 70% of sales in the month of sale; 20% in the following month; and the final 10% in the second month after the sale.

What are Ross's budgeted collections for July?

A. $998,000.

B. $1,110,000.

C. $1,080,000.

D. $899,000.

Cash Collections

Estimating future credit sales collections is based on the amount of prior credit sales, the amount of those sales, terms of sale and customer paying habits.

Answer and Explanation:

The answer is B. $1,100,000.

Using the accounts receivable balance of $350,00 determine prior months sales based on collections percentages:

June Sales. $240,000/.3=$800,000 (20%+10%)

May Sales. $110,000/.1=$1,100,000

See the following table.

May June July
Credit Sales 100.0% $1,100,000 $800,000 $1,200,000
Current Month 70.0% $770,000 $560,000 $840,000
Month Following 20.0% $220,000 $160,000
Second Month 10.0% $110,000
Collections $1,110,000

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