Question

Problem 16-05
Accounts Payable

A chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day. The company purchases the inventory under the credit terms of 1/15, net 35. APP always takes the discount, but takes the full 15 days to pay its bills. What is the average accounts payable for APP? Round your answer to the nearest dollar.

$  

Answer 1

By using the accounts payable period formula we can calculate average accounts payable balance
Acccounts payable period	Average accounts payable/Purchases per day
The accounts payable period is 15 days as store makes payment within discount period
15	Average accounts payable/500000
Average accounts payable	15*500000
Average accounts payable	$7,500,000
Thus, average accounts payable for APP is $7,500,000