Days of payables VS Days sales in A/P 2011, different, between, written

manchester88

Hi, guys. Your advice is needed again.

I'v got these two ratios:

1) Days of payables (ratio from financial statement analysis chapter; purchases used); and
2) Days sales in A/P (ratio from cf shenanigans chapter; COGS used)

Are these ratios simply taken from different sources written by different authors but are essentially the same, or should I distinguish between them on the exam?



Edited 1 time(s). Last edit at Thursday, September 1, 2011 at 02:32AM by Deimon.

rohitdoshi

Can you please post the exact formulas? Thanks.

Houjichasan

Sure!

days of payables = (accounts payable / purchases) * number of days

days sales in accounts payable = (accounts payable / COGS) * number of days

king_kong

Deimon Wrote:
-------------------------------------------------------
> Sure!
>
> days of payables = (accounts payable / purchases)
> * number of days
>
> days sales in accounts payable = (accounts payable
> / COGS) * number of days


I think they are the same. Recall reading that sometimes COGS is used as proxy for purchases if purchase info is not available.

PalacioHill

Actually, come to think of it, I think I had the same question. However, I was able to decipher (don't remember exactly how because I am past that material right now) that:

Purchases = Ending Inventory + COGS - Beginning Inventory

Which means that the two formulas have different denominators. I had a hard time (and still do!) memorizing some of the formulas in these two volumes because the differences are so subtle.

C3Po -- I don't recall reading that COGS could be used as a proxy for purchases. It would be good if you can point us to the relevant material.

mar350

@Oyster

You are correct. The formula you used is to detrmine purchases if you do not have that figure given. In either case COGS is a determinant. It makes sense that COGS could be used is it is a major component.

Look at reading 35 pg 326 top of the page.

Houjichasan

Yes, I remember that "purchases" formula too. Different names of these ratios confused me however.

I could not find the ratio "Days sales in A/P" through quick googling. Instead I found several Days of payables definitions which used both purchases and cogs interchangeably.

So now I beleive that we should not distinguish between these measures.