Formula for trade payable days?

Formula for trade payable days?

• A. (average payable days / credit purchases) x 365
• B. (credit purchases / average payable days) x 365
• C. (average payable days / average credit purchases) x 365
• D. (average payable days / credit purchases) x 360

Answer: (A)

Trade payable days (days payable outstanding) shows how many days on average a company takes to pay its suppliers. To measure it, relate the amount owed to suppliers to the level of credit purchases made during the period and convert that proportion into days. The standard formula is: average trade payables divided by credit purchases, times 365. The numerator is the average amount owed to suppliers (in currency), and the denominator is the purchases made on credit over the period (also in currency). Multiplying by 365 turns the year’s proportion into a count of days, giving how long payables are outstanding on average. If a 360-day year is used instead, you’d multiply by 360. For example, if average payables are 50,000 and credit purchases are 250,000, DPO = (50,000 / 250,000) × 365 = 73 days.

Trade payable days (days payable outstanding) shows how many days on average a company takes to pay its suppliers. To measure it, relate the amount owed to suppliers to the level of credit purchases made during the period and convert that proportion into days.

The standard formula is: average trade payables divided by credit purchases, times 365. The numerator is the average amount owed to suppliers (in currency), and the denominator is the purchases made on credit over the period (also in currency). Multiplying by 365 turns the year’s proportion into a count of days, giving how long payables are outstanding on average. If a 360-day year is used instead, you’d multiply by 360.

For example, if average payables are 50,000 and credit purchases are 250,000, DPO = (50,000 / 250,000) × 365 = 73 days.