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Today I had CBE and now I have a question about ratios:)
Should we consder interest accrued on receivables/payables in calculation of Average collection period (receivables days) and Average payment period (payables days).
Example for payables:
if we have next figures in the question:
Credit purchases: $500,000
Cash purchases: $200,000
Total purchases: $700,000Trade payables $20,000
Interest accrued for payables: $500
Total payables $20,500How to calculate payables days?
I would not include the interest on payables in calculation of ratio because: they are accrued – does not mean are going to be paid ( parties may agree not to charge the interest, and if were paid would be treated as finance cost (other interest). Interest are not trade creditors. Trade creditors/payables are outstanding invoices for supplies of goods and services needed for trading. Interest are not a tradning item. But a may be wrong…:)
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