How to Calculate Accounts Payable Turnover

Accounts-payable turnover is a measure of how quickly a business pays its creditors.

Accounts payable refers to the outstanding amount a business owes its suppliers for goods purchased. Accounts-payable turnover calculates the average time it takes the business to pay its suppliers for goods that were purchased. Accounts-payable turnover is also referred to as payables turnover. Accounts-payable turnover is calculated by dividing the total of purchases made on credit by the average accounts-payable balance for any given period.

Instructions

1. Add the total dollar value of purchases made on credit for the chosen period.

2. Add the beginning accounts-payable balance to the ending accounts-payable balance and divide by two to determine average accounts payable for the chosen period.

3. Divide the value of the total purchases made on credit by the average accounts payable for the chosen period. The result is the accounts-payable turnover for that period and represents how many times the accounts-payable account turned over in the given period.

Tips & Warnings

• To determine the average number of days it took to pay bills, divide the number of days in the chosen period by the accounts-payable turnover number. For example: If the accounts-payable turnover was 12 and the chosen period was 365 days, the average number of days it took to pay bills would be 365 days divided by 12, which equals 30.4 days.

References

• Financial Education: Accounts Payable Turnover
• Accounting Tools: Accounts Payable Turnover Ratio