LeokLee Industries has an average accounts payable balance of $720,000.Its average annual cost of goods sold is $8,760,000.It receives terms of 1/10 net 30 from its suppliers.Is LeokLee managing its accounts payables well?
A)Yes,since it,on average,chooses not to take the discount,but pays when payment is due.
B)Yes,since it,on average,takes the discount,and pays at the end of the discount period.
C)Yes,since it,on average,stretches payment beyond the due payment date.
D)No,since it,on average,does not take advantage of the discount period and pays well before payment is due.
E)No,since it,on average,does not make payment before it is due.

Question

Quizplus · Accepted Answer

To determine if LeokLee Industries is managing its accounts payables well, we need to consider the terms offered by its suppliers, which are 1/10 net 30. This means the company has the option to take a 1% discount if it pays within 10 days, otherwise, the full amount is due in 30 days. Since the choice indicates that LeokLee chooses not to take the discount but pays when payment is due, it suggests that the company is managing its cash flow by holding onto its cash as long as possible without incurring late fees or penalties. This can be a valid strategy, especially if the company can earn more with the cash in hand than the discount offered. However, without more information on the company's cash management strategies or the opportunity cost of not taking the discount, we cannot definitively say it's the best approach, but it does indicate a level of management over payables.

LeokLee Industries Has an Average Accounts Payable Balance of $720,000