Credit purchases enter Accounts Payable during the period. Merchandise purchases can include both cash and credit acquisitions. Cost of goods sold is the cost transferred out when goods are sold. Supplier payments settle claims created in the current or earlier periods.
Reconcile supplier activity
Under the bounded facts, without discounts, returns, disputed invoices, or other adjustments:
Opening Accounts Payable + credit purchases − supplier payments
= ending Accounts Payable
Aster begins Year 3 with $35,000, makes $210,000 of credit purchases, and ends with $44,000. Supplier payments are:
$35,000 + $210,000 − $44,000 = $201,000
The $9,000 payable increase is a timing bridge. It is not a financing cash inflow and does not prove favorable supplier relations.
Why the numerator matters
Accounts Payable turnover should relate ordinary trade payables to the flow that created them. In the module, that flow is disclosed credit purchases. If an external analyst substitutes cost of goods sold because purchases are not available, Inventory changes and cash-versus-credit mix can distort the result. Such a quotient must be labeled as a proxy and interpreted cautiously.
The distinction also prevents a false cash conclusion. Aster purchases $249,000 of merchandise in Year 3, only $210,000 on credit, recognizes $235,000 as cost of goods sold, and pays suppliers $201,000. Each number has a different job.
Boundary
Supplier-finance arrangements, accrued services, capital expenditures, cash purchases, discounts, returns, disputed invoices, foreign-currency changes, and acquisitions are excluded. Applicable classification and disclosure guidance controls whether a balance is ordinary trade payable or financing; this concept does not make that determination.
Put the concept to work
Understand this concept
- Explain credit purchases as the period input that creates ordinary supplier payables, distinct from total merchandise purchases, cost of goods sold, and supplier cash payments.
Analyze this concept
- Reconcile opening payables, credit purchases, supplier payments, and ending payables, and explain why cost of goods sold is not an undisclosed substitute for credit purchases.
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Build on these ideas
- Accounts payable — Analyze
To analyze this concept: Required. The payable rollforward distinguishes obligation creation from cash settlement.
- Accounts payable — Understand
To understand this concept: Required. The purchases create the supplier obligation used in the analytical rollforward.
- Credit purchases — Understand
To analyze this concept: Required. The rollforward requires the qualifying supplier-credit additions.
Show 1 more prerequisites
- Inventory — Understand
To understand this concept: Helpful. A merchandise purchase can add Inventory before any cost transfer or supplier settlement.
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Use this idea next
- Accounts payable turnover — Understand
Required level here: understand. Required. The numerator should correspond to the activity that creates the payables in scope.
- Credit purchases — Analyze
Required level here: understand. Required. The rollforward requires the qualifying supplier-credit additions.