Question

Both the inventory conversion period and payables deferral period use the average daily COGS in their denominators, whereas the average collection period uses average daily sales in its denominator. Why do these measures use different inputs

Answer 1

Answer:

Explanation:

In business accounting, the inventory conversion period / payables deferral period and average collection period use different inputs due to the fact that Inventory and accounts payable are carried at cost on the balance sheet, whereas accounts receivable are recorded at the price at which goods are sold. Therefore the accounts receivable (average collection period) are attached and dependent on the specific/changing price of the goods sold.