ACCA Applied Knowledge · Financial Accounting · Ratios
Dunmore Co has cost of sales of $730,000, closing inventory of $120,000 and closing trade payables of $100,000. All purchases are on credit and purchases were $710,000. Using year-end balances and 365 days, what is the payables payment period?
The payables payment period is 51 days. Trade payables of $100,000 are divided by credit purchases of $710,000 and multiplied by 365. Purchases, not cost of sales, are the correct base when the purchases figure is given.
- A51 daysCorrect
- B50 days
- C61 days
- D47 days
Explanation
Payables days = payables / credit purchases x 365 = 100,000 / 710,000 x 365 = 51.4, so 51 days. Using cost of sales gives 100,000/730,000 x 365 = 50 days, which is wrong because purchases are the correct base when known.
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