Accounts payable is one of the most important financial figure in a firm’s accounting and is used to calculate a number of other financial figures such as current ratio, working capital and many other financial figures. In order to calculate the above mentioned figures most of the companies prefer to calculate average accounts payable rather than calculating the most commonly recorded amount that is actually the month end balance of all the accounts payable remained with the business.
Calculation of Average Accounts Payable
There are a number of issues due to which most of the businesses prefer to aggregate the payable balance at the end of each day of the entire month and then divide this aggregate to the total number of business days. Most of the businesses acquire special staff to calculate accounts payable for each day. However many other businesses generate a monthly average accounts payable figure depending upon the weekly ending figure of the accounts payable?
Importance of Average Accounts Payable
In some cases where the accounts payable figure remains consistent over the certain period of time most of the businesses don’t calculate average accounts payable figure. However there is a risk associated with not calculating the average accounts payable figure that is the figure can become unusually high or low at the end of the month that can create a problem. However if the risk associated with average accounts payable figure to become too high or too low then the month ending figure is used instead of using an aggregate figure or average accounts payable figure.