In: Finance
A firm has an average accounts payable of $72,451.00, with COGS reported at $811,334.00 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?
Days Payable outstanding | = | Average accounts Payable/(Cost of goods sold/Number of days) | |||||||||
= | $ 72,451 | / | (811334/365) | ||||||||
= | $ 72,451 | / | $ 2,223 | ||||||||
= | 33 | Days | |||||||||
Reduced Days Payable | = | 7 Days | |||||||||
Revised days payable | = | Average accounts Payable/(Cost of goods sold/Number of days) | |||||||||
7 | = | Average accounts Payable/ | (811334/365) | ||||||||
7 | = | Average accounts Payable/ | $ 2,223 | ||||||||
7 | = | Average accounts Payable/ | $ 2,223 | ||||||||
Average accounts Payable | = | $ 15,560 | |||||||||
Thus, Average accounts Payable if they take discount is | $ 15,560 | ||||||||||
Note: | |||||||||||
a. | Number of days in a year is taken as 365 | ||||||||||
b. | There may be approximation difference due to runding off. | ||||||||||