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The following information (in $ millions) was taken from recent annual reports of Kellogg Company and General Mills, Inc. Kellogg General Mills Sales revenue $13,525 $17,630 Average accounts receivable balance $1,310 $1,435 Calculate each company’s accounts receivable turnover. (Round answers to 1 decimal place, e.g. 50.1.) Calculate each company’s average collection period. (Round answers to 1 decimal places, e.g. 50.1. Use 365 days for calculation.)

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Answer:

The answer is: Accounts receivable turnover 10.3 and average collection period of 35.4 days for Kellogg Company. Accounts receivable tuenover 12.3 and average collection period of 29.47 days for General mills.

Explanation:

Assuming sales revenue does not include cash sales, sales returns and sales allowances, we can compute the following:

Kellogg Company:

-Accounts Receivable turnover = Net credit sales / average accounts receivable

Accounts Receivable turnover = $13,525/ $1,310

Accounts Receivable turnover = 10.3 times

-Average collection period = 365 days / Accounts Receivable turnover

Average collection period = 365 days / 10.3

Average collection period = 35.4 days

General Mills:

-Accounts Receivable turnover = Net credit sales / average accounts receivable

Accounts Receivable turnover = $17,630/ $1,435

Accounts Receivable turnover = 12.3 times

-Average collection period = 365 days / Accounts Receivable turnover

Average collection period = 365 days / 12.3

Average collection period = 29.7 days

N/B: The accounts receivable turnover measures the number of times a business can generate cash from its receivables over a period of time. This explains wht cash sales, sales returns and allowances are excluded because they do not create receivables for a business.

The average collection period is the number of days between the credit sales occurence and the collectioin of cash from these sales.

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