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Question 3.2: Here is a variation on the receivables collection period. Ho...

Here is a variation on the receivables collection period. How long, on average, does it take for Prufrock Corporation to pay its bills? To answer, we need to calculate the accounts payable turnover rate using cost of goods sold. We will assume that Prufrock purchases everything on credit.

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The cost of goods sold is $1,344, and accounts payable are $344. The turnover is therefore $1,344/$344 = 3.9 times. So payables turned over about every 365/3.9 = 94 days. On average, then, Prufrock takes 94 days to pay. As a potential creditor, we might take note of this fact.

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