Bercraft Industries has an average accounts payable balance of $280,000. Its average annual cost of goods sold is $4,780,000. It receives terms of 1/20 net 40 from its suppliers. Is Bercraft 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.

Question

Quizplus · Accepted Answer

Bercraft Industries is not managing its accounts payables well because it, on average, does not take advantage of the discount period and pays well before payment is due. By not taking the discount, Bercraft is losing out on potential savings and paying its suppliers earlier than necessary, which could negatively impact its own cash flow.

Bercraft Industries Has an Average Accounts Payable Balance of $280,000