COGS and 'purchases'

CFA Level I FRA
#1

Formula for payables turnover (per Schweser quicksheet) is: Purchases / Avg Payables

I’ve always understood ‘purchases’ to be calced as: Beginning Inv + Purchases - COGS = Ending Inventory

And then solve for Purchases.

However I saw in a practice question (can’t remember where) that instead of solving for Purchases they just did COGS / Avg Payables.

Can anyone clarify which we are supposed to use - COGS or Purchases - in calculating things like cash conversion cycle etc?

Thanks in advance

#2

We always use purchases over average account payables. If we have a source, then maybe we can check it out.

#3

If there is nothing about change in inventory, then we have to assume that:

beginning inventory = ending inventory

Hence (rearrange above formula):

purchases = COGS

hence:

Purchases /average payables = COGS / average payables = payables turnover

#4

If Purchases not given thn use COGS as numerator otherwise.

#5

The example I had showed two yrs of balance sheet and an income statement for the most recent yr, so you could get purchases.

My answer came out slightly different than what the book said but close enough to the answer (I think it was Qbank - I’ll see if I can track it down).

#6

Purchases = ending inventory + COGS - beginning inventory

If i am not mistaken…

#7

Actually it was in the CFAI sample questions, that set of 20 - see problem 9.

Not a big deal there, as the answer using purchases (solving the way I described) makes the total answer 21.96, and the choices were 23, 26 and 28, but still frustrating.