The company expects 60% of its sales to be credit sales and 40% for cash. Credit sales are collected as follows: 30% in the month of sale, 70% in the month following the sale. The budgeted accounts receivable balance on May 31 is:

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Compton Company expects the following total sales:

MonthSales

March$30,000

April$20,000

May  $30,000

June$25,000

The company expects 60% of Its sales to be credit sales and 40% for cash.  

Credit sales are collected as follows:

30% in the month of sale, 68% in the month following the sale with the remainder being uncollectible and written off.

Required:

The budgeted Accounts Receivable balance on May 31 is:

$13,200

Explanation:

Step 1 : Separate Cash and Credit Sales in the Sales Budget

Sales Budget for the Months ended, March, April and May

                                       March          April           May                 June

Sales                             $30,000     $20,000      $30,000        $25,000

Cash Sales                    ($12,000)   ($8,000)     ($12,000)     ($10,000)

Credit Sales                    $18,000     $12,000      $18,000       $15,000

Step 2 : Prepare the Trade Receivable Budget considering credit sales only

Trade Receivable Budget for the Months ended, March, April and May

                                         March          April           May                 June

Balance b/d                        $0          $12,600        $8,760        $13200

Credit Sales                  $18,000     $12,000      $18,000         $15,000

Collection - 30 %          ($5,400)    ($3,600)      ($5,400)        ($4,500)

Collection - 68 %               $0         ($12,240)     ($8,160)        ($12,240)

Balance c/f                    $12,600       $8,760       $13,200          $11,460

Note :

The Trade Receivable Budget forecasts the amounts that will be owed to a business by credit customers

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