Computer Information Systems

Step 1: Correct Answer The accounts payable turnover ratio is calculated as: Accounts Payable Turnover Ratio = Cost of Goods Sold Average Accounts Payable \text{Accounts Payable Turnover Ratio} = \frac{\text{Cost of Goods Sold}}{\text{Average Accounts Payable}} So, the correct answer is: C. Cost of goods sold divided by average accounts payable Explanation: The accounts payable turnover ratio measures how many times a company can pay off its average accounts payable during a period. Using the cost of goods sold in the numerator ensures that we are looking at the costs directly related to inventory and production, which is what accounts payable typically finances. This ratio provides insight into the company's efficiency in managing its payables and maintaining good relationships with its suppliers. Step 2: Why Other Options Are Not Correct Let's analyze why the other options are incorrect. Option A: Total purchases divided by average accounts payable Explanation : While some variations of the accounts payable turnover ratio use total purchases, the most widely accepted formula is to use the cost of goods sold (COGS). Total purchases might not accurately reflect the actual outflows related to production and inventory costs, which are better captured by COGS. Option B: Total sales divided by average accounts payable Explanation : This option is incorrect because total sales represent the revenue generated from selling goods or services. It does not directly relate to how effectively a company is paying off its suppliers. The accounts payable turnover ratio focuses on the efficiency of paying suppliers for inventory and materials, which is reflected in COGS. Option D: Total liabilities divided by average accounts payable Explanation : Total liabilities include all the financial obligations of a company, not just those related to accounts payable. This includes long-term debts, short-term debts, and other obligations. Using total liabilities would not provide an accurate measure of how well a company manages its short-term obligations to suppliers. Final Answer Final Answer: Accounts Payable Turnover Ratio = Cost of Goods Sold Average Accounts Payable \text{Accounts Payable Turnover Ratio} = \frac{\text{Cost of Goods Sold}}{\text{Average Accounts Payable}} The correct answer is C. Cost of goods sold divided by average accounts payable . This ratio is a key metric for evaluating a company's short-term liquidity and efficiency in managing its accounts payable.

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Accounts payable turnover ratio is calculated by:

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\ufeffTotal purchases divided by average accounts payable

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\ufeffTotal sales divided by average accounts payable

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\ufeffCost of goods sold divided by average accounts payable

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\ufeffTotal liabilities divided by average accounts payable

Answer

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