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?
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.
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from Finance 101: Principles of FinanceChapter 18 / Lesson 3