If a firm has annual sales of $2,000,000, gross profit of $800,000 and an average investment in accounts payable of $100,000, the firm's payables period is 15 days (one-half month).

Question

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The payables period is calculated by dividing the average accounts payable by the cost of goods sold per day. The cost of goods sold is $1,200,000 ($2,000,000 - $800,000). Dividing $1,200,000 by 365 gives the daily cost of goods sold, and dividing $100,000 by this daily amount gives the payables period, which is not 15 days.

If a Firm Has Annual Sales of $2,000,000, Gross Profit