1. |
Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.
Explanation:
1.
| April | May | June | Total |
February sales: $370,000 × 10% | $ | 37,000 | | | | | $ | 37,000 |
March sales: $400,000 × 60%, 10% | | 240,000 | $ | 40,000 | | | | 280,000 |
April sales: $440,000 × 30%, 60%, 10% | | 132,000 | | 264,000 | $ | 44,000 | | 440,000 |
May sales: $640,000 × 30%, 60% | | | | 192,000 | | 384,000 | | 576,000 |
June sales: $220,000 × 30% | | | | | | 66,000 | | 66,000 |
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Total cash collections | $ | 409,000 | $ | 496,000 | $ | 494,000 | $ | 1,399,000 |
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Notice that even though sales peak in May, cash collections peak in June. This occurs because the bulk of the company’s customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest.
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2.
Accounts receivable at June 30: |
From May sales: $640,000 × 10% = $64,000 |
From June sales: $220,000 × (60% + 10%) = $154,000 |
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