Question

A firm has an average accounts payable of $73,763.00, with COGS reported at $804,902.00 for the past year. A supplier has offered the firm a large discount if they can reduce days payable to 7 days. What would be the average accounts payable if they take this discount?

Answer 1

To get discount Required accounts payable in days=   7  

Supplier payments in days = 365/Accounts payable turnover ratio      
7 = 365/accounts payable turnover ratio      
accounts payable turnover ratio is   52.14285714  

Accounts payable turnover ratio formula = Cost of goods sold/Average accounts payable      
52.14285714   =804902/account payable  
accounts payable=   =804902/   52.14285714
=$15436.47671      
      
So average accounts payable should be $15436.48 to take the discount      

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