The accounts payable turnover ratio uses purchases on account in its computation. Although firms do not disclose their purchases, the analyst can calculate the purchase amount as follows:
A)Purchases = Cost of Goods Sold + Ending Inventory + Beginning Inventory
B)Purchases = Cost of Goods Sold + Ending Inventory - Beginning Inventory
C)Purchases = Cost of Goods Sold - Ending Inventory + Beginning Inventory
D)Purchases = Cost of Goods Sold - Ending Inventory - Beginning Inventory
E)Purchases = Cost of Goods Sold x Ending Inventory - Beginning Inventory

Question

Quizplus · Accepted Answer

The correct formula for calculating purchases is Purchases = Cost of Goods Sold + Ending Inventory - Beginning Inventory. This is because purchases are made up of cost of goods sold plus the increase in inventory from the beginning to the end of the period. Subtracting beginning inventory ensures that only the purchases made during the period are included in the calculation.

The Accounts Payable Turnover Ratio Uses Purchases on Account in Its