![]() Net Credit Purchases (Total Purchases) / Average Accounts Payable = Accounts Payable Turnover Ratio In the absence of net credit purchases, you can alternatively substitute it for the cost of goods sold.Īccounts payable turnover formula calculations are mentioned below: You will then have to examine your net credit purchases throughout that period, also known as total supplier purchases, divided by your accounts payable. You must first choose the start and end points of the period you are measuring for. The calculation for the accounts payable turnover formula is relatively simple. Accounts Payable Turnover Formula With Calculation To get a real picture, the business needs to compare its accounts payable turnover ratio either with its past ratio or with the industry average. ![]() In isolation, this number may not make much sense. The business’s accounts payable turnover ratio for the fiscal year is 5.92. The business wishes to calculate how frequently it paid its creditors over the fiscal year.Īccounts Payable Turnover Ratio = Net Credit Purchases / Average Accounts Payable At the start of the year, the company had SGD 12,000 in accounts payable and SGD 25,121 at the end of the year. Of these, items worth SGD 10,000 were returned. To get a better understanding of how accounts payable turnover works, let’s take a look at an example.įor the fiscal year that ended on December 31, 2021, XYZ Company reported annual purchases on the credit of SGD 1,20,000. The quicker the business pays off its debt, the greater the accounts payable turnover ratio. In other words, accounts payable turnover can also be referred to as a business's short-term debt repayment to its vendors and suppliers. ![]() Accounts payable turnover meaning can be summarized as how a business settles its accounts payables throughout a period, say a month or a quarter. The accounts payable turnover ratio is a metric of short-term liquidity used to quantify how quickly a business pays its suppliers.
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