How is the accounts payable turnover ratio calculated?



Q23. Accounts payable turnover ratio
How is the accounts payable turnover ratio calculated?

A23.
Accounts payable turnover ratio
= Credit purchases / Average accounts payable

[Entity 23-a]
Credit purchases = $4,710,000
Cash purchases = $450,000
Beginning accounts payable = $280,000
Ending accounts payable = $320,000
Average accounts payable
= ($280,000 + $320,000) / 2
= $300,000
Accounts payable turnover ratio
= $4,710,000 / $300,000 = 15.7

[Entity 23-b]
Credit purchases = $5,841,000
Cash purchases = $570,000
Beginning accounts payable = $310,000
Ending accounts payable = $350,000
Average accounts payable
= ($310,000 + $350,000) / 2
= $330,000
Accounts payable turnover ratio
= $5,841,000 / $330,000 = 17.7

[Note]
Higher accounts payable turnover ratio –> more active.
Thus in this example, Entity 23-b is more active in accounts payable turnover than Entity 23-a.