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ACCA Applied Skills · Financial Management · The nature, elements and importance of working capital

Brent Co has annual credit sales of $7,300,000 and cost of sales of $5,110,000. Year-end trade receivables are $1,000,000 and trade payables are $600,000. Purchases equal cost of sales. Using a 365-day year, what is the trade payables payment period?

The payables payment period is about 43 days. Trade payables of $600,000 are divided by purchases, here equal to cost of sales of $5,110,000, and multiplied by 365. Using sales as the base would wrongly give 30 days.

  1. A43 daysCorrect
  2. B30 days
  3. C60 days
  4. D50 days

Explanation

Payables days = payables / purchases x 365 = 600,000 / 5,110,000 x 365 = 42.9, about 43 days. Option C uses sales as the base (600,000/7,300,000 x 365 = 30 days, which is option B, wrong base). Option C is 60 days from using 1,000,000 receivables wrongly.

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