Alright, here we go with another ratio, the accounts payable turnover ratio. So accounts payable turnover, well, this is going to relate the amount of generally, I'm going to say COGS. Most of the time in your class, you're going to use COGS as the numerator, but the technically correct term is purchases, but we're going to go with COGS is generally what we're going to use here. And we're going to relate that to our average accounts payable level. Okay? That's the accounts payable turnover. And this is a common efficiency ratio. How efficiently are we? How efficient are we at paying off our debts? Paying off our accounts payable. Okay? So the account payable turnover, notice in this formula here, I've got purchases or COGS in the numerator. You're going to want to check with your professor or see his questions, see how he generally how he generally tackles these questions, but generally, like I said, you're gonna we're gonna use COGS in this class, because it's a little less complicated. And we're gonna divide that by our average AP. So remember, every time we do an average, it's gonna be the beginning balance plus the ending balance divided by 2. So let me put that in here. This is always how we're gonna do it. Beginning balance plus ending balance divided by 2. Okay? So you've got an interesting way to calculate our purchases. We can back into it. If we're given an inventory account, so if we see a balance sheet and we're given 2 years. If we're given last year's balance sheet, this year's balance sheet, and we have an income statement. Well, we can back into our purchases, or get a pretty good estimate of it. All right? So our inventory T account, right? We're gonna have some beginning balances of debit, and then we're gonna have purchases. We're gonna buy more inventory, and then what's gonna lower the inventory account? Well, when we sell inventory. Right? COGS. COGS is going to lower the account and we'll be left with an ending balance. So if we rearrange those algebraically and solve for purchases, what we're going to see is that it equals the COGS plus the ending inventory minus beginning inventory, that's equal to our purchases. So we could get purchases for our numerator with that amount of information. But like I said, you're generally not gonna do that. You're just gonna have a COGS amount divided by average AP. Easy peasy, alright? So how do we analyze an AP turnover? Well, the AP turnover let me leave it on screen there. The AP turnover, it tells us how many times we're able to pay our AP during the year. How many times we are able to pay our AP during the year. So if you think about it, right? We're gonna have some accounts payable balance and every time we purchase, it's gonna increase that balance. But it's not gonna keep increasing and increasing. No. We're gonna have to pay it off, right? So we're gonna have some average balance, but those purchases keep increasing as we purchase and purchase. So you can imagine that the numerator is going to be bigger than the denominator, right? Because we're going to have to be paying off those AP and keep them at some average balance that we have for our company. Right? So how do we compare AP turnover? Well, like most ratios, we use benchmarking, right? Because we have to know in our industry, what's a reasonable amount. So we check with our competitors, we check with the industry average, and we see how our AP turnover compares to them. All right? And last but not least, I want to just mention here that a higher AP turnover, the higher your AP turnover, well, it implies you pay off your debts more quickly, right? You're able to pay them off more quickly as the ratio goes higher. Higher. Alright? So in general, this is a pretty easy formula. Let's go ahead and jump into some practice problems.

- 1. Introduction to Accounting1h 21m
- 2. Transaction Analysis1h 13m
- 3. Accrual Accounting Concepts2h 38m
- Accrual Accounting vs. Cash Basis Accounting10m
- Revenue Recognition and Expense Recognition24m
- Introduction to Adjusting Journal Entries and Prepaid Expenses36m
- Adjusting Entries: Supplies12m
- Adjusting Entries: Unearned Revenue11m
- Adjusting Entries: Accrued Expenses12m
- Adjusting Entries: Accrued Revenues6m
- Adjusting Entries: Depreciation16m
- Summary of Adjusting Entries7m
- Unadjusted vs Adjusted Trial Balance6m
- Closing Entries10m
- Post-Closing Trial Balance2m

- 4. Merchandising Operations2h 30m
- Service Company vs. Merchandising Company10m
- Net Sales28m
- Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory9m
- Perpetual Inventory - Purchases10m
- Perpetual Inventory - Freight Costs9m
- Perpetual Inventory - Purchase Discounts11m
- Perpetual Inventory - Purchasing Summary6m
- Periodic Inventory - Purchases14m
- Periodic Inventory - Freight Costs7m
- Periodic Inventory - Purchase Discounts10m
- Periodic Inventory - Purchasing Summary6m
- Single-step Income Statement4m
- Multi-step Income Statement17m
- Comprehensive Income2m

- 5. Inventory1h 55m
- Merchandising Company vs. Manufacturing Company6m
- Physical Inventory Count, Ownership of Goods, and Consigned Goods10m
- Specific Identification7m
- Periodic Inventory - FIFO, LIFO, and Average Cost23m
- Perpetual Inventory - FIFO, LIFO, and Average Cost31m
- Financial Statement Effects of Inventory Costing Methods10m
- Lower of Cost or Market11m
- Inventory Errors14m

- 6. Internal Controls and Reporting Cash1h 16m
- 7. Receivables and Investments3h 8m
- Types of Receivables8m
- Net Accounts Receivable: Direct Write-off Method5m
- Net Accounts Receivable: Allowance for Doubtful Accounts13m
- Net Accounts Receivable: Percentage of Sales Method9m
- Net Accounts Receivable: Aging of Receivables Method11m
- Notes Receivable25m
- Introduction to Investments in Securities13m
- Trading Securities31m
- Available-for-Sale (AFS) Securities26m
- Held-to-Maturity (HTM) Securities17m
- Equity Method25m

- 8. Long Lived Assets5h 1m
- Initial Cost of Long Lived Assets42m
- Basket (Lump-sum) Purchases13m
- Ordinary Repairs vs. Capital Improvements10m
- Depreciation: Straight Line32m
- Depreciation: Declining Balance29m
- Depreciation: Units-of-Activity28m
- Depreciation: Summary of Main Methods8m
- Depreciation for Partial Years13m
- Retirement of Plant Assets (No Proceeds)14m
- Sale of Plant Assets18m
- Change in Estimate: Depreciation21m
- Intangible Assets and Amortization17m
- Natural Resources and Depletion16m
- Asset Impairments16m
- Exchange for Similar Assets16m

- 9. Current Liabilities2h 19m
- 10. Time Value of Money1h 23m
- 11. Long Term Liabilities2h 45m
- 12. Stockholders' Equity2h 15m
- Characteristics of a Corporation17m
- Shares Authorized, Issued, and Outstanding9m
- Issuing Par Value Stock12m
- Issuing No Par Value Stock5m
- Issuing Common Stock for Assets or Services8m
- Retained Earnings14m
- Retained Earnings: Prior Period Adjustments9m
- Preferred Stock11m
- Treasury Stock9m
- Dividends and Dividend Preferences17m
- Stock Dividends10m
- Stock Splits9m

- 13. Statement of Cash Flows2h 24m
- 14. Financial Statement Analysis5h 25m
- Horizontal Analysis14m
- Vertical Analysis23m
- Common-sized Statements5m
- Trend Percentages7m
- Discontinued Operations and Extraordinary Items6m
- Introduction to Ratios8m
- Ratios: Earnings Per Share (EPS)10m
- Ratios: Working Capital and the Current Ratio14m
- Ratios: Quick (Acid Test) Ratio12m
- Ratios: Gross Profit Rate9m
- Ratios: Profit Margin7m
- Ratios: Quality of Earnings Ratio8m
- Ratios: Inventory Turnover10m
- Ratios: Average Days in Inventory9m
- Ratios: Accounts Receivable (AR) Turnover9m
- Ratios: Average Collection Period (Days Sales Outstanding)8m
- Ratios: Return on Assets (ROA)8m
- Ratios: Total Asset Turnover5m
- Ratios: Fixed Asset Turnover5m
- Ratios: Profit Margin x Asset Turnover = Return On Assets9m
- Ratios: Accounts Payable Turnover6m
- Ratios: Days Payable Outstanding (DPO)8m
- Ratios: Times Interest Earned (TIE)7m
- Ratios: Debt to Asset Ratio5m
- Ratios: Debt to Equity Ratio5m
- Ratios: Payout Ratio5m
- Ratios: Dividend Yield Ratio7m
- Ratios: Return on Equity (ROE)10m
- Ratios: DuPont Model for Return on Equity (ROE)20m
- Ratios: Free Cash Flow10m
- Ratios: Price-Earnings Ratio (PE Ratio)7m
- Ratios: Book Value per Share of Common Stock7m
- Ratios: Cash to Monthly Cash Expenses8m
- Ratios: Cash Return on Assets7m
- Ratios: Economic Return from Investing6m
- Ratios: Capital Acquisition Ratio6m

- 15. GAAP vs IFRS56m
- GAAP vs. IFRS: Introduction7m
- GAAP vs. IFRS: Classified Balance Sheet6m
- GAAP vs. IFRS: Recording Differences4m
- GAAP vs. IFRS: Adjusting Entries4m
- GAAP vs. IFRS: Merchandising3m
- GAAP vs. IFRS: Inventory3m
- GAAP vs. IFRS: Fraud, Internal Controls, and Cash3m
- GAAP vs. IFRS: Receivables2m
- GAAP vs. IFRS: Long Lived Assets5m
- GAAP vs. IFRS: Liabilities3m
- GAAP vs. IFRS: Stockholders' Equity3m
- GAAP vs. IFRS: Statement of Cash Flows5m
- GAAP vs. IFRS: Analysis and Income Statement Presentation5m

# Ratios: Accounts Payable Turnover - Online Tutor, Practice Problems & Exam Prep

The accounts payable turnover ratio measures how efficiently a company pays off its debts, calculated by dividing the cost of goods sold (COGS) by the average accounts payable. The formula for average accounts payable is $\frac{\mathrm{Beginning}+\mathrm{Ending}}{2}$. A higher ratio indicates quicker debt repayment, and benchmarking against industry standards is essential for analysis. Understanding this ratio is crucial for assessing a company's liquidity and operational efficiency.

### Ratios: Accounts Payable Turnover

#### Video transcript

XYZ Company had net sales of $500,000 and COGS of $320,000. If the beginning balance of AP was $60,000 and the ending balance in AP was $100,000, what is the AP Turnover ratio?

ABC Company had $200,000 in Net Sales and Gross Profit of $80,000. If AP had a balance of $60,000, what is the AP Turnover ratio?