In addition to days' sales in receivables and days' sales in inventory we could calculate "days' sales in payables" by computing the accounts payable turnover and dividing it into 365 days. In words,
What do these ratios tell us?
A) The number of days it takes before the current ratio falls to zero.
B) The number of days of sales needed to make a proﬁt.
C) The time it takes to completely replace total current assets.
D) The rate at which assets are replaced.
E) How long it takes, on average, to entirely deplete these accounts.

Question

Quizplus · Accepted Answer

Days' sales in receivables and days' sales in inventory ratios tell us how long it takes on average to collect cash from customers and sell inventory respectively. Similarly, days' sales in payables ratio tells us how long it takes, on average, to pay our suppliers for the purchases we have made on credit. This ratio measures the efficiency of our payment process and the cash conversion cycle. A lower number of days' sales in payables means we are paying our suppliers quickly, while a higher number means we are delaying payments and potentially damaging our relationship with suppliers. Therefore, option E, how long it takes, on average, to entirely deplete these accounts, is the best choice.

In Addition to Days' Sales in Receivables and Days' Sales