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:

 

 	April	May	June	Total
Budgeted sales (all on account)	$300,000	$500,000	$200,000	$1,000,000
 

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 70% 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 $230,000, and March sales totaled $260,000.

 

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

### 1. **Schedule of Expected Cash Collections from Sales (April to June)**

The cash collections depend on the company’s policy:
- 20% of sales collected in the month of sale.
- 70% collected in the following month.
- 10% collected in the second month following the sale.

We will calculate the cash collections for each month of the second quarter, based on the sales figures and past sales data.

#### February Sales: $230,000  
- Collected in April (10%):  
  $ 230,000 \times 0.10 = 23,000 $

#### March Sales: $260,000  
- Collected in April (70%):  
  $ 260,000 \times 0.70 = 182,000 $  
- Collected in May (10%):  
  $ 260,000 \times 0.10 = 26,000 $

#### April Sales: $300,000  
- Collected in April (20%):  
  $ 300,000 \times 0.20 = 60,000 $  
- Collected in May (70%):  
  $ 300,000 \times 0.70 = 210,000 $  
- Collected in June (10%):  
  $ 300,000 \times 0.10 = 30,000 $

#### May Sales: $500,000  
- Collected in May (20%):  
  $ 500,000 \times 0.20 = 100,000 $  
- Collected in June (70%):  
  $ 500,000 \times 0.70 = 350,000 $  
- Collected in July (10%):  
  (This portion is ignored for the second-quarter collection schedule but will be part of the receivables.)

#### June Sales: $200,000  
- Collected in June (20%):  
  $ 200,000 \times 0.20 = 40,000 $  
- Collected in July (70%):  
  (This will not be included in second-quarter collections but will affect the receivables.)  
- Collected in August (10%):  
  (This is also excluded from the current quarter.)

Now we can organize this information in a table.

| Month         | April | May   | June  | Total   |
|---------------|-------|-------|-------|---------|
| From February | 23,000| -     | -     | 23,000  |
| From March    | 182,000| 26,000| -     | 208,000 |
| From April    | 60,000| 210,000| 30,000| 300,000 |
| From May      | -     | 100,000| 350,000| 450,000 |
| From June     | -     | -     | 40,000| 40,000  |
| **Total**     | **265,000**| **336,000**| **420,000**| **1,021,000** |

So, the total cash collections for the second quarter are **$1,021,000**.

---

### 2. **Accounts Receivable Balance on June 30th**

The accounts receivable balance on June 30th will include:
- 10% of May sales collected in July.
- 80% of June sales collected in July and August.

#### May Sales:
- 10% of $500,000 = $50,000 (collected in July).

#### June Sales:
- 70% of $200,000 = $140,000 (collected in July).
- 10% of $200,000 = $20,000 (collected in August).

Thus, the accounts receivable on June 30th is:

\[
50,000 + 140,000 + 20,000 = 210,000
\]

So, the accounts receivable balance on June 30th is **$210,000**.

---

Would you like further clarification or more detailed insights? Here are five related questions to deepen your understanding:

1. How would bad debt affect the cash collections schedule?
2. What is the impact of varying collection percentages on the company's liquidity?
3. How does the accounts receivable turnover ratio affect cash flow projections?
4. What are some strategies to improve cash collection efficiency?
5. How could sales trends influence future collection schedules?

**Tip:** Managing accounts receivables effectively ensures that the company maintains good liquidity while minimizing the risk of uncollected sales.

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. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter. What is the accounts receivable balance on June 30th?

Explore how to prepare a detailed cash collection schedule for Silver Company's second quarter sales, including the accounts receivable balance on June 30th. This problem covers concepts such as cash flow projections, accounts receivable, and sales collection percentages.

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