Carruthers Company expects the following total sales:

Month Sales

March $29,000

April $19,000

May $25,000

June $24,000

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, 67% in the month following the sale with the remainder being uncollectible and written off in the month following the sale. The budgeted accounts receivable balance on May 31 is:

a. $22,320.

b. $18,750.

c. $13,125.

d. $11,725.

Option (c) is correct.

Explanation:

It is assumed that all the sales cash and credit up to the month of April will be adjusted before 31st may.

Any receivables remaining as on 31st May are related to the sales of May only.

May Sales = $25,000

Out of which Cash sales adjusted in the same month:

= 30% of May sales

= 30% * 25,000

=$7,500

Remaining credit sales:

= May sales - Cash sales

= $25,000 - $7,500

= $17,500

Out of which 25% i. e. $4,375 received in May only.

The budgeted accounts receivable balance on May 31 is:

= Remaining credit sales - Received 25% in May

= 17,500 - 4,375

= $13,125