Payables Days?

mcchocmcchoc East YorkshirePosts: 39Registered, Tutor
The textbook definition is

Payables/COS x 365.

This of course conveniently ignores the fact that Payables is gross (includes VAT) and COS is net, but never mind.

Imagine a (non-VAT) business purchases £1,000 worth every month and pays all suppliers after 30 days.
Its Payables days is thus 30 days by definition.

Now imagine opening stock was £88,000 and closing stock was zero. Purchases are 12 x £1,000 = £12,000.

Using the book definition, payables days = £1,000/£100,000 x 365 = 3.65 days. But we KNOW it's really 30 . . .

So shouldn't the formula be -

Payables/Purchases x 365? = £1000/£12,000 x 365 = 30.4 days??




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