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Dear sir,
In your financial performance measurement lecture part 2, to calculate payables days you used cost of sales figure as purchases. could you please explain why we should take cost of sales figure as purchases if purchases figure is not given?
can’t we calculate the purchases figure using the calculations below?
cost of sales = opening inventory + purchases – closing inventory
5385 = P – 1006
Purchases = 5385 + 1006
=6391Yes, of course you can calculate purchases (and it would be better to use purchases).
However, if you are comparing two years then you have to do it the same way for both years – you cannot use purchases one year and cost of sale the other year.
To be able to calculate purchases in both years you would need to know the opening inventory in both years.
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