Which item is used to calculate the DPO in the forecast described?

• A. Average Accounts Payable
• B. Beginning Accounts Payable
• C. Ending Accounts Payable
• D. Accounts Payable Turnover

Answer: (A)

Days Payable Outstanding shows how long, on average, the company takes to pay its suppliers. To forecast this, you want a measure that represents the payables over the entire period, not just a single snapshot. Average accounts payable does exactly that — it smooths the balances across the period so DPO reflects typical payables rather than a point in time. The usual relationship is DPO ≈ 365 × (Average Accounts Payable) / Cost of Goods Sold, or equivalently DPO = 365 / AP turnover, but the input that drives the period’s DPO in this forecast is the average level of payables. Using beginning or ending accounts payable would distort the measure because they don’t capture how payables behaved throughout the period.