Exercise 9-1 Schedule of Expected Cash Collections [LO2]
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)
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 $260,000.
Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)
Observe 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.