Calculate the average accounts payable for APP Corporation
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A chain of appliance stores, APP Corporation, purchases inventory with a net price of $500,000 each day. The company purchases the inventory under the credit terms of 2/15, net 40. APP always takes the discount but takes the full 15 days to pay its bills. What is the average accounts payable for APP?
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Solution Summary
The 207 word cited solution explains the two difference methods of recording and reporting the accounts payable amount, and also provides the calculations for both methods.
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If $500,000 is purchased every single day, and if the company pays every invoice on the fifteenth day, there will always be 15 days of bills outstanding at any point in time. $500,000 x 15 days = $7,500,000. This is called the gross method of recording purchasing transactions.
One might ask whether the 2% ...
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