Days in Accounts Payable Ratio

Definition: Days in Accounts Payable shows how many days it takes to pay trade payable.

Formula:
Days in Accounts Payable = (Average Accounts Payable / COGS) * 365 days
Or,
Days in Accounts Payable = 365 Days / Accounts Payable Turnover

Example 1:
If credit purchases is $77,000; purchases returns $7,000; opening stocks $2,000; closing stocks $3,000; Average Accounts Payable $8,000.
Then,
Cost of Goods Sold = 2,000 + (77,000 - 7,000) - 3,000 = $69,000
Days in Accounts Payable = (8,000 / 69,000) * 365 = 42.3 days

Example 2:
The following information relates to KK Ltd for the year ended 31 December 2010:
Credit purchases: $900
Return outwards: $100
Stocks at start of the year: $1,000
Stocks at end of the year: $600
Creditors at start of the year: $300
Creditors at end of the year: $200
Then:
COGS = 1,000 + (900 - 100) - 600 = $1,200
Average Accounts Payable = (300 + 200) / 2 = $250
Average Payment Period = (250 / 1,200) * 365 = 76 days

* Next: Accounts Receivable Collection Period
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