Purchasing inventory on account increases the accounts payable turnover ratio.

Question

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Purchasing inventory on account increases accounts payable, but the accounts payable turnover ratio is calculated as cost of goods sold divided by average accounts payable. Simply increasing accounts payable without affecting cost of goods sold does not directly increase the turnover ratio; it may actually decrease it if the ratio of cost of goods sold to accounts payable decreases.

Purchasing Inventory on Account Increases the Accounts Payable Turnover Ratio