Silver Company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year, as shown in the company?s sales budget for the second quarter given below:
|Budgeted sales (all on account)||$480,000||$680,000||$260,000||$1,420,000|
From past experience, the company has learned that 30% of a month's sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $410,000, and March sales totaled $440,000.
1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.
2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.
The schedule of budgeted cash collection is prepared while preparing the cash budget. It is essential to understand the expected cash collections in order to plan funds for the coming period.
Answer and Explanation:
1. Schedule of cash collection for the second quarter and in total:
|Budgeted sales revenue||$480,000.00||$680,000.00||$260,000.00||$1,420,000.00|
|Cash collections at 30 % in current month||$144,000.00||$204,000.00||$78,000.00||$426,000.00|
|Cash collections at 60 % of sales of previous quarter||$264,000.00||$288,000.00||$408,000.00||$960,000.00|
|Cash collections at 10 % of sales of second previous quarter||$41,000.00||$44,000.00||$48,000.00||$133,000.00|
|Total cash collection from sales||$449,000.00||$536,000.00||$534,000.00||$1,519,000.00|
1. Cash collections in the month of April include 60% of March's sales and 10% of Feb's sales
2. Cash collections in the month of May include 60% of April's sales and 10% of March's sales
3. Cash collections in the month of June include 60% of May's sales and 10% of April's sales.
2. Accounts receivables balance as on June 30:
As on June 30, accounts receivables balance would include:
10% of sales made in May = $680,000 * 10% = $68,000
70% of sales made in June = $260,000 * 70% = $182,000
Accounts receivables balance as of June 30 = $68,000 + $182,000 = $250,000
Learn more about this topic:
from Finance 101: Principles of FinanceChapter 18 / Lesson 3