Which formula defines A/P Days according to the material?

Which formula defines A/P Days according to the material?

• A. Ending Payables / Sales * Number of Days of Sales
• B. Ending Payables / COGS
• C. Ending Payables / COGS * Number of Days of COGS
• D. Ending Payables / Beginning Payables * 365

Answer: (C)

A/P Days shows how long, on average, a company takes to pay its suppliers. To estimate this, you relate the ending amount of accounts payable to the pace of purchases. COGS serves as a proxy for daily purchases, since it reflects the cost of goods actually bought during the period. By dividing Ending Payables by COGS, and then multiplying by the number of days in the period (for a full year, 365), you convert that ratio into an average number of days outstanding. So Ending Payables / COGS × number of days in the period directly measures how many days purchases financed by payables stay outstanding. Using Sales would tie the metric to revenue rather than purchase activity, and Beginning Payables would not reflect the current period’s payables outstanding, making the result less representative of the cash conversion cycle.

A/P Days shows how long, on average, a company takes to pay its suppliers. To estimate this, you relate the ending amount of accounts payable to the pace of purchases. COGS serves as a proxy for daily purchases, since it reflects the cost of goods actually bought during the period. By dividing Ending Payables by COGS, and then multiplying by the number of days in the period (for a full year, 365), you convert that ratio into an average number of days outstanding. So Ending Payables / COGS × number of days in the period directly measures how many days purchases financed by payables stay outstanding. Using Sales would tie the metric to revenue rather than purchase activity, and Beginning Payables would not reflect the current period’s payables outstanding, making the result less representative of the cash conversion cycle.