What are Maynard Company's projected sales for the first three months of the year? How does the company distribute the sales in terms of cash and on account payments? And how does the company collect payments for sales made on account?
Projected Sales and Payment Distribution
Maynard Company projects the following sales for the first three months of the year:
- January: $10,800
- February: $16,100
- March: $12,800
The company expects 80% of the sales to be made in cash, while the remaining 20% will be on account.
Collection of Payments for Sales on Account
For sales made on account, Maynard Company follows this collection schedule:
- 50% of sales on account are collected in the same month of the sale.
- The remaining 50% of sales on account are collected in the following month.
Now, let's calculate the accounts receivable balance for each month based on the projected sales and payment distribution.
Calculation of Accounts Receivable Balance
In January, the cash sales would be 80% of $10,800, which is $8,640. The sales on account would be 20% of $10,800, which is $2,160. Therefore, the accounts receivable balance on January 1 would be $2,160.
In February, the cash sales would be 80% of $16,100, which is $12,880. The sales on account would be 20% of $16,100, which is $3,220. Since 50% of sales on account are collected in the month of the sale, the accounts receivable balance for February would be $3,220 + $2,160 = $5,380.
In March, the cash sales would be 80% of $12,800, which is $10,240. The sales on account would be 20% of $12,800, which is $2,560. The accounts receivable balance for March would be $3,220 + $2,160 + $2,560 = $7,940.
By following this distribution of cash and on account payments, Maynard Company can accurately manage its accounts receivable balance for the first three months of the year.