Days of Sales Payable

CFA Level I FRA
#1

I came across the concept of Days Of Sales Payable in Reading 34, and that was like the first and only time it was mentioned in the CFA text, plus , they just explained the formular,which I find it difficult to make sense of. Llike what’s the connection between sales and payables? Please I need help.

#2

There are two common formulae for calculating payables turnover:

Payables turnover = purchases / average payables

Payables turnover = COGS / average payables

From either of these you can compute days of payables outstanding:

Days of payables outstanding = 365 / payables turnover

To distinguish the two, CFA Institute now calls the formula using purchases “days of payables outstanding” and the formula using COGS “days of sales payable”. Two flavors of the same thing.

#3

Oh. Okay, Thanks.

#4

You’re welcome.