Question

ABC Company has a cash cycle of 11.06 days, an operating cycle of 23.05 days, and an average collection period of 7 days. The company reported cost of goods sold of $243,023. What is the company's average balance in Accounts Payable?

Answer 1

Answer:

Cash Cycle = Operating Cycle – Accounts Payable Period
Accounts Payable Period = 365 / Accounts Payable Turnover
or Accounts Payable Period = 365 * Average Accounts Payable / Cost of Goods Sold

Or Cash Cycle = Operating Cycle – [365 * Average Accounts Payable / Cost of Goods Sold]
11.06 = 23.05 – [365 * Average Accounts Payable / 243,023]
365 * Average Accounts Period / 243,023 = 11.99
Average Accounts Period = 11.99 * 243,023 / 365
Average Accounts Period = $7,983.14