Question

Creditors (Payable) Turnover Ratio can be calculated as ______?

विकल्प

• Net Credit purchases/Average accounts payable

• Average accounts payable/Net Credit purchases

• Net Total sales/Average Accounts payable

• None of these

Answer 1

Creditors (Payable) Turnover Ratio can be calculated as Net Credit purchases/Average accounts payable.

Explanation:

The creditor turnover ratio reflects the payment trend of accounts payable. It expresses the relationship between credit purchases and accounts payable since accounts payable arise as a result of credit purchases. It is calculated as a follows:

Creditors Turnover ratio = `"Net Credit purchases"/"Average .accounts payable"`

Where Average account payable = `("Opening Creditors and Bills Payable" + "Closing Creditors and Bills Payable")/2`

It reveals the average payment period. Lower ratios indicate that the provider has extended credit or that payment to suppliers has been delayed, which is not a desirable policy because it might harm the company's reputation. The average payment term can be calculated using days/months and the turnover rate in a year.