Hello,
Could someone explain this part of the answer?
Ending payables = [($9,863.03 × 2) – 10,785] = $8,941.05
Lightline, a component manufacturer, has reported average payables and ending payables of $12,450 and $10,785 respectively for the year 2013. On average Lightline takes 57 days to pay its suppliers. The company would like to shorten this to a minimum of 45 days next year in order to take advantage of early payment discounts. The company expects to make $80,000 worth of purchases in 2014. Assuming there are 365 days in a financial year and Lightline achieves its targets, the company’s closing balance of account payables in 2014 will be closest to: A. $8,941.05. B. $9,863.03. C. $32,444.44
A To reduce number of days of payables to 45, the payables turnover measure should equal 8.1111 (see below). Number of days of payables = number of days in period/payables turnover Payables turnover (2014) = 365/45 = 8.1111 Payables turnover = Purchases/average trade payables Average trade payables (2014) = $80,000/8.1111 = $9,863.03 Average trade payables (2014) = (Beginning payables + Ending payables)/2 Ending payables = [($9,863.03 × 2) – 10,785] = $8,941.05