The account payable of Atty. Perez showed a credit balance of Php35,000.00 at January 31, 2019. During the quarter, an additional billing for supplies purchased on account was received in the amount of Php10,000.00. If accounts payable at the end is Php20,000.00. What was the amount of supplies paid during the quarter?
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Answer:
Accounts Payable (AP) is generated when a company purchases goods or services from its suppliers on credit. Accounts payable is expected to be paid off within a year’s time or within one operating cycle (whichever is shorter). AP is considered one of the most current forms of the current liabilities on the balance sheet.
accounts payable theme
Accounts Payable Turnover
Accounts payables turnover is a key metric used in calculating the liquidity of a company, as well as in analyzing and planning its cash cycle. A related metric is AP days (accounts payable days). This is the number of days it takes a company, on average, to pay off their AP balance.
The cash cycle (or cash conversion cycle) is the amount of time a company requires to convert inventory into cash. It is tied to the operating cycle, which is the total of accounts receivable days and inventory days. The cash cycle, then, is the operating cycle minus AP days.
Reducing Accounts Payables
AP is an accumulation of the company’s current obligations to suppliers and service providers. As such, accounts payables are reduced when a company pays off the obligation. Using double-entry accounting, cash is reduced alongside AP. As such, the asset side is reduced an equal amount as compared to the liability side.
How to Calculate Accounts Payable in Financial Modeling
In financial modeling, it’s important to be able to calculate the average number of days it takes for a company to pay its bills.
accounts payable in a financial model
The formula for calculating AP days is:
AP Days = (Accounts Payable Value / Cost of Goods Sold) x 365
The formula for calculating AP value is:
AP Value = (Accounts Payable Days x Cost of Good Sold) / 365
Note: The above examples are based on a full year 365-day period.
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