Cost of Sales to Payables Ratio

Definition: The cost of sales to payables ratio indicates the number of times trade payable turn over during a period. It can be calculated by using the formula: Cost of sales / Average trade payables.

Example:
Pure Golden Ltd. has the following data:
Trade payables at start of year: $25,000
Trade payables at end of year: $15,000
Stocks at start of year: $18,000
Stocks at end of year: $5,000
Total Purchases: $21,000
Purchases returns: $1,000

Then,
Average Trade Payables = (25,000 + 15,000) / 2 = $20,000
Cost of Goods Sold = Stocks at start of year + (Purchases - Purchases returns) -Stocks at end of year = 18,000 + (21,000 - 1,000) - 5,000 = $33,000
Cost of Sales to Payables Ratio = 33,000 / 20,000 = 1.65 times

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