Question

Accounts payable: beginning of year $ 75,000 end of year 125,000 net sales 1,600,000 cost of goods sold 800,000 what is the company’s accounts payable turnover ratio?

Answer 1

The accounts payable turnover ratio is calculated by dividing the cost of goods sold (COGS) by the average accounts payable, which in this case results in 8 times per year. This measures how frequently the company pays its suppliers.

Step-by-step explanation:

To calculate the accounts payable turnover ratio, we use the formula:

Accounts Payable Turnover Ratio = Total Supplier Purchases / Average Accounts Payable

However, the total supplier purchases are often not given directly but can be estimated using the Cost of Goods Sold (COGS) provided that the inventory levels do not change significantly or if changes in inventory are negligible. In this case, we will use the COGS as an approximation for total supplier purchases.

First, we find the average accounts payable for the year:

Average Accounts Payable = (Beginning Accounts Payable + Ending Accounts Payable) / 2 = ($75,000 + $125,000) / 2 = $100,000

Next, we use the COGS as total supplier purchases:

Total Supplier Purchases = COGS = $800,000

Now, we can calculate the ratio:

Accounts Payable Turnover Ratio = $800,000 / $100,000 = 8 times per year.

This ratio indicates how many times a company clears its accounts payable in a year.