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I just have 2 quick questions…
Firstly – when calculating Payable Days is the formula Payables/COS or is it Payables/COS+Operating expenses? I don’t understand why the overheads aren’t part of the calculation?
Also – in the exam will we loose marks if we use the wrong terminology – for example turnover instead of Revenue, Stock instead of Inventory or Blance sheet instead of statement of financial position. I’m sitting the International paper.
Many Thanks
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payables days formula=payables/cos or payables/purchases…not cos+operating expenses!!
Payables days are calculated as:
Payables/Purchases per day = Payables x 365/Purchases.
Often the purchases figure is not available so cost of sales is used as an approximation.
Overheads are not included on the bottom line because they will include items such as depreciation (which does not have to be paid) and wages, which will not be in the trade payables figure.
You other query about terminology would probably not give rise to difficulties, but it would be better/safer if you can use the official terminology. The ACCA questions and answers are careful about this.
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