Determine the creditors turnover ratio, Managerial Accounting

Assignment Help:

Creditors turnover ratio ( or payables turnover ratio)

Meaning: this ratio establishes a relation ship between net credit purchases and average trade creditors.

Objective: the objective of computing this ratio is to determine the efficiency with which the creditors are managed.

Components: there are two components of this ratio which are as under:

Net credit purchase

Average trade creditors

Computation: the average payment period ratio show the average number of days taken by the firm to pay its creditors. Generally lower the ratio the improved is the liquidity position of the firm and higher the ratio less liquid is the position of the firm. But a higher payment period also implies greater credit period enjoyed by the firm and consequently larger the profit reaped from credit suppliers. But one has to be careful in interpreting this ratio as higher ratio may also imply lesser discount facilities availed or higher prices paid for the goods purchased on credit. To make correct interpretation of this ratio a comparative analysis of different firm in the same industry and the trend may be found for various years.

 


Related Discussions:- Determine the creditors turnover ratio

Explain zero base budgeting, Introduction of zero base budgeting Steps ...

Introduction of zero base budgeting Steps involved in the introduction of zero base budgeting 1) Corporate objectives should be established and laid down in detail 2) Dec

Depriciation, In 2007, the controller of the XYZ Company discovered that 20...

In 2007, the controller of the XYZ Company discovered that 2006 depreciation expense was overstated by $50,000, a material amount. Assuming an income tax rate of 40 percent, the pr

Problrm question, The std cost of chemical mixture~PQ is as follows: 40% of...

The std cost of chemical mixture~PQ is as follows: 40% of material P @rs.400/kg 60% of material Q @rs.600/kg A std loss of 10% is normally anticipated in pdn. The followinng parti

Definition of accounting, Definition of accounting Accounting is the pr...

Definition of accounting Accounting is the procedure of recognizing measuring and communicating economic information to allow informed judgments and decisions by the user’s inf

What is replacement cost, Replacement cost It is the cost of replacing ...

Replacement cost It is the cost of replacing a material or asset, by purchase from the current market. If an X material was originally purchased @ Rs. 250 per Kg. And know i

Learning curve theory, LEARNING CURVE THEORY The first time a new opera...

LEARNING CURVE THEORY The first time a new operation is performed both workers and operating procedures are untried but as the operation is replaced the workers becomes more fa

Adjacent extreme points, Adjacent extreme points differ in only one variabl...

Adjacent extreme points differ in only one variable The first observation indicates that we can identify the extreme points of the solution space algebraically by setting zero as

Accounting rate of return - arr, ARR gives a fast estimate of a project's v...

ARR gives a fast estimate of a project's value over its useful life. ARR is derived by determining profits before taxes and interest.   ARR is an accounting technique used fo

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd