Multiple Choice
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?
14. Financial Statement Analysis
Ratios: Accounts Payable Turnover
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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?
A
1.8
B
3.2
C
4.0
D
5.0
Verified step by step guidance1
Understand that the Accounts Payable (AP) Turnover Ratio is calculated by dividing the Cost of Goods Sold (COGS) by the average accounts payable.
Calculate the average accounts payable by adding the beginning balance of AP ($60,000) and the ending balance of AP ($100,000), then divide by 2.
Use the formula for AP Turnover Ratio: \( \text{AP Turnover Ratio} = \frac{\text{COGS}}{\text{Average Accounts Payable}} \).
Substitute the given values into the formula: COGS is $320,000 and the average accounts payable is the result from step 2.
Solve the equation to find the AP Turnover Ratio, which will help you determine how many times the company pays off its accounts payable during a period.
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