Which expression represents payments in terms of purchases and payables?

Which expression represents payments in terms of purchases and payables?

• A. Payments = Purchases + Payables
• B. Payments = Purchases - Payables
• C. Payments = Payables - Purchases
• D. Payments = Purchases

Answer: (B)

The key idea is how payments relate to purchases and what's still owed. When you buy on credit, payables rise because you’ve incurred a debt to suppliers. When you pay, payables fall. The payments you actually make during a period are the portion of purchases that have been settled in cash, so they are the purchases minus what you still owe at the end of the period (the payables balance). Therefore, Payments = Purchases − Payables expresses that idea: you’ve bought a total amount on credit, but some of that remains unpaid (the payables), and the rest has been paid in cash. For example, if purchases are 100 and the ending payables are 25, payments made are 75. If opening payables were zero, this aligns exactly; with opening payables, the full relation would be Opening payables + Purchases − Closing payables, but the simplified form in this context uses Purchases minus Payables.

The key idea is how payments relate to purchases and what's still owed. When you buy on credit, payables rise because you’ve incurred a debt to suppliers. When you pay, payables fall. The payments you actually make during a period are the portion of purchases that have been settled in cash, so they are the purchases minus what you still owe at the end of the period (the payables balance).

Therefore, Payments = Purchases − Payables expresses that idea: you’ve bought a total amount on credit, but some of that remains unpaid (the payables), and the rest has been paid in cash. For example, if purchases are 100 and the ending payables are 25, payments made are 75. If opening payables were zero, this aligns exactly; with opening payables, the full relation would be Opening payables + Purchases − Closing payables, but the simplified form in this context uses Purchases minus Payables.