Confused about trade payable period calculation

katiekitkat123

I'm studying for part 2 of my credit management exam, and revising the ratios but I'm a bit confused. :confused1: Up until now I have been told and have college notes saying the way you calculate trade payable payment period days is trade payable / cost of sales x 365 but know doing the green light revision on the AAT website it says you calculate it as trade payable / purchases x 365, I used the first in my financial statement exam and am now a little confused as to which one I should use and why I was give the first one in one exam and now the second in this exam. Thank you for any light you can shed on this, Katie

wbauk2002

It's 100% cost of sales, was reading it today in cash management book

katiekitkat123

can't understand why the aat green light is saying its over purchases? Not helpful for all us revising when aat are giving us the wrong ratios

coojee

If you're given a figure for purchases you should use that as it's more accurate. If you're not then use cost of sales. Cost of sales includes the adjustment for stock so it doesn't show what's been purchased during the year making the ratio less accurate. For maximum accuracy you would use credit purchases if given the figure, next most accurate is purchases and lastly cost of sales.

katiekitkat123

coojee wrote: »

If you're given a figure for purchases you should use that as it's more accurate. If you're not then use cost of sales. Cost of sales includes the adjustment for stock so it doesn't show what's been purchased during the year making the ratio less accurate. For maximum accuracy you would use credit purchases if given the figure, next most accurate is purchases and lastly cost of sales.

Thanks for explaining coojee, would have been nice if my lecturer would have told us that