Multiple Choice
XYZ Company had net sales of $500,000 and COGS of $320,000. If the beginning balance of AP was $60,000 and the ending balance in AP was $100,000, what is the AP Turnover ratio?
14. Financial Statement Analysis
Ratios: Accounts Payable Turnover
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ABC Company had $200,000 in Net Sales and Gross Profit of $80,000. If AP had a balance of $60,000, what is the AP Turnover ratio?
A
1.33
B
2.00
C
3.33
D
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Verified step by step guidance1
Understand the formula for Accounts Payable (AP) Turnover Ratio: \( \text{AP Turnover Ratio} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Accounts Payable}} \).
Identify the given values: Net Sales = $200,000, Gross Profit = $80,000, and AP balance = $60,000.
Calculate the Cost of Goods Sold (COGS) using the formula: \( \text{COGS} = \text{Net Sales} - \text{Gross Profit} \). Substitute the given values to find COGS.
Assume that the AP balance provided is the average accounts payable, as no other information is given about changes in AP during the period.
Substitute the calculated COGS and the given AP balance into the AP Turnover Ratio formula to find the ratio.
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