AP aging and days payable outstanding
Northwind's AP aging at September 30, why it must tie to the balance sheet, and its DPO of 10.6 days read with care.
The AP aging lists every unpaid bill by how far past its due date it is. Its total must equal accounts payable on the balance sheet at the same date, because the aging is the subledger and 2000 is its control account. Northwind's at September 30 is one line long, and it ties.
It ties, which is the first check every close makes on payables. When the aging and the control account disagree, something was posted to 2000 without a bill behind it, usually a manual journal entry, or a bill was paid outside the bill-pay tool and never closed. Anything sitting in the later buckets is either a dispute to resolve or a bill already paid some other way.
Days payable outstanding
Days payable outstanding turns the AP balance into days of purchases: (ending AP ÷ cost of revenue) × days in the period. For Northwind's September that is $6,000 ÷ $17,000 × 30 = 10.6 days.
Pay later than terms
- Good at
- Cash stays in the bank longer
- The cash conversion cycle shortens on paper
- Watch for
Late fees, lost discounts, and vendors who start asking for cash up front
- Best for
- A negotiated change in terms, agreed with the vendor in writing
Pay on the due date
- Good at
- Keeps the cash until the day it is owed
- Vendors keep extending credit
- Watch for
DPO sits near the terms, not above them
- Best for
- Almost every startup
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- US GAAP
- ASC 405 (opens in a new tab)LiabilitiesFree after registration
- Background reading — not an authority
- Wikipedia, “Days payable outstanding” (opens in a new tab)Days payable outstandingFree to read
The full map is in US GAAP, and where these rules come from.
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- AgingGrouping open receivables or payables into buckets by days past due date — current, 1–30, 31–60, 61–90, 90+
- DPODPO is a liquidity and working-capital metric, calculated as (Ending AP ÷ COGS for the period) × Days in the period.Convention
- SubledgerThe detail, by customer, vendor or asset, whose total must equal its control account in the GLConvention
- Control accountA GL account whose balance is the total of a subledger — AR, AP, fixed assets — and is posted only from itConvention
- CCCDSO + DIO − DPO: the days between paying suppliers and collecting from customers. Negative means customers pay before suppliers are paidConvention
- Accounts payableWhat we owe vendors for bills already received
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Procure to pay (AP)The payables stack from requisition to reconciliation: requisition → PO → receipt → bill → approval → payment → reconciliation.
- Metric definitionsEvery metric in this system ships with its formula, period, inputs and source. A KPI without a definition is a number people argue about in meetings.
- DPO calculatorDPO is a liquidity and working-capital metric, calculated as (Ending AP ÷ COGS for the period) × Days in the period.
- Cash conversion cycle calculatorDSO + DIO − DPO: the days between paying suppliers and collecting from customers. Negative means customers pay before suppliers are paid
- DSO vs DPODSO counts the days of sales customers haven't paid for yet. DPO counts the days of purchases the company hasn't paid for. With inventory days, they make up the cash conversion cycle.
- Accounts payable process for startups: intake to paymentHow a bill moves from inbox to paid: intake, coding, approval, scheduling and recording, plus AP aging and who approves what at a 10-person startup.
- AgingTableAR/AP buckets, 0-30-60-90+.
- BillRegisterAging and approval state.
- CashRequirementsDue in 7/14/30 vs. available, payroll broken out.