Question

XYZ Company has annual sales of $501,811. The cost of goods sold are $344,296. The firm has an accounts receivable balance of $18,238, an accounts payable balance of $17,334 and inventory of $6,859.

How many days does it take on average for the firm to pay its suppliers? That is, what is the payable period?

Assume 365 days. Enter your answer rounded off to one decimal point.

Answer 1

For payables period, we need to calculate accounts payable turnover ratio first.

Accounts payables turnover ratio = Cost of goods sold / Accounts payables

Putting the given values in the accounts payables turnover ratio formula, we get,

Accounts payables turnover ratio = $344296 / $17334 = 19.86

Now, we will calculate the payables period by the following formula:

Payables period = 365 / Accounts payable turnover ratio

Putting the values in the above formula, we get,

Payables period = 365 / 19.86 = 18.4 days