E 11.1 - Silver Company - Budgeted cash collections

Exercise

E 11.1

    Silver Company makes a product that is very popular as a Mother’s day gift. Thus peak sales occur in May of each year. Thee peak sales are shown in the company’s sales budget for the second quarter given below:

                                                April                            May                 June                 Total

            Budgeted Sales           £300,000                     £500,000         £200,000         £1,000,000

From the past experience, the company has learned that 20% of the month’s sales are collected in the month of sale, that other 70% is collected in the month following sale, and the remaining 10% is collected in the second month following sales. Bad debts are negligible and can be ignored. February sales totalled £230,000 and March sales totalled £260,000.

Required:

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 30 June. Compute the accounts receivable as of that date.