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Decrease in trade payables exercise

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Decrease in trade payables exercise

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • June 26, 2021 at 7:24 am #626350
    VrakasYi
    Member
    • Topics: 7
    • Replies: 6
    • ☆

    Select figures from a firm’s budget for next month are as follows.

    Sales – $450000
    Gross profit on sales – 30%
    Decrease in trade payables over the month – $10000
    Increase in cost of inventory held over the month – $18000

    What is the budgeted payment to trade payables?

    Answer
    payment=$(450000×70%+18000+10000)= $343000

    My problem is that I understand everything except adding the 10000.
    I would think that decrease in payables would mean less of an expense, right?

    So why are we adding it to our payments?

    Any help is appreciated!

    June 26, 2021 at 8:55 am #626358
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    The question is not asking for the expense, it is asking for the amount actually paid.

    For the payables to fall by $1,000 then they must have paid an extra $1,000. If all they had done was paid for what they had bought during the month, then the amount owing would not have changed.

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