Ally Manufacturing has an average accounts payable balance of $420,000. Its average annual cost of goods sold is $10,220,000. It receives terms of 2/15 net 30 from its suppliers. Is Ally 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

Ally takes the discount and pays at the end of the discount period, which is the optimal way to manage accounts payable.

Ally Manufacturing Has an Average Accounts Payable Balance of $420,000