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Trade payables help

Forums › ACCA Forums › ACCA MA Management Accounting Forums › Trade payables help

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • Author
    Posts
  • July 3, 2021 at 11:28 am #626894
    VrakasYi
    • 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!

    July 3, 2021 at 4:15 pm #626918
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 50053
    • ☆☆☆☆☆

    No, it would not mean less of expense.

    If they just paid for what they had bought during the month then payables at the end of the month would be the same as they were at the start of the month.

    For the payables to be lower at the end of the month then they must have paid more cash.

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