Question

Compton Company expects the following total sales: Month Sales March $ 20,000 April $ 10,000 May $ 34,000 June $ 15,000 The company expects 70% of its sales to be credit sales and 30% for cash. Credit sales are collected as follows: 25% in the month of sale, 75% in the month following the sale. The budgeted accounts receivable balance on May 31 is:

Answer 1

Answer:

The accounts receivable balance on May 31 is $17850

Explanation:

First we need to determine the amount of credit sales for the month of May. The credit sales for May will be 70% of the total sales for May. Thus, the credit sales for May are,

Credit sales- May = 34000 * 0.7   = $23800

The accounts receivable balance at the end of May will contain the amount due from credit sales that are made in May that are still not collected and will be collected in the next month as per the company's policy.

Accounts receivable at the end of May = 23800 * 0.75 = $17850