Question

A company reports ending accounts payable of $1,440 and cost of goods sold of $11,680. Compute...

A company reports ending accounts payable of $1,440 and cost of goods sold of $11,680. Compute days’ payable outstanding.

Multiple Choice

  • 39 days

  • 45 days

  • 36 days

  • 35 days

  • 41 days

Business   Accounting   
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Homework Answers

Answer #1

Answer:

Day's' Payable Outstanding (DPO):

It refers to  average number of days it takes a company to pay back its accounts payable.

The ratio is calculated on a quarterly or on a yearly basis, and it indicates how well the company manage its cash outflows.

  

DPO = ( Accounts Payable / Cost of goods sold ) * Number of days in corresponding period

= ( $ 1,440 / $ 11,680 ) * 365

= 45 Days

The Correct answer is 45 Days.

As per the above workings the other answers are not correct.

There are two methods for DPO Calculation, which are used depending upon the accounting practices.

In one method the accounts payable amount is taken as the figure reported at the end of the accounting period.

In another method the average value of accounts payable is taken.

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