Account Payables Calculation

In this article, I would like to share how to calculate Account Payables by sharing two examples. Before we see the examples, let revisit the complete formula of Account Payables as following:

ACCOUNT PAYABLES = TRADE PAYABLES + OTHER PAYABLES + EMPLOYEE PAYABLES AND SOCIAL SECURITY + CURRENT TAX LIABILITIES

Trade Payables include the following items:

  1. Trade payables relating to purchase of (i) raw materials, (ii) goods and (iii) rendering of services,
  2. Trade payables relating to payments withheld as a guaranty;
  3. Trade payables on invoices to be received;
  4. Notes payable on trade receivables, bills payable;
  5. Payables to fixed assets suppliers, notes payable on payables to fixed assets suppliers;
  6. Payables on operating leases;
  7. Less debtors payables (down-payments to suppliers; overpayments, credit notes, returns or allowances, claims);

Other Payables include the following items:

  1. Accrued payables;
  2. Deferred income;
  3. Customs duties and excise duties.

The following items are not included in ‘other payables’ nor in the definition of the Working Capital:

  • Any payable related to litigation with competitors;
  • Any payable related to IP litigation;
  • Any payable related to product facility litigation;
  • Any payable related to environmental litigation;
  • Any payable related to class action litigation;
  • Any payable related to product claims;
  • Any payable related to breaches of law/regulation litigation;
  • Any payable related to breaches of contract litigation;
  • Any payable related to warranty/indemnity claims on previous transactions;
  • Any payable related to health and safety claims;

Employee payables and Social Security payables include the following items:

  1. Wages and salaries payable;
  2. Prepayments to employees;
  3. Third party liens on employee wages;
  4. Accrued vacation expenses;
  5. Accrued personnel expenses;
  6. Social Security;
  7. Other social security agencies;
  8. Accrued Social Security on unpaid vacation;
  9. Less accrued Social Security;

Example 1 – GAB

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For GAB (and most of the companies), to calculate “Account Payables”, just add “Trade and other payables, including derivatives” and “Current tax liabilities” together. For example, “Account Payables” = 179,142 + 4,084 = 183,226. Quite easy.

Example 2 – DIGI

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The way DIGI presents “Current Liabilities” is slightly more comprehensive. How to calculate “Account Payables”? Let’s go through each item.

Trade and other payables

This is definitely part of “Account Payables”. Common sense.

Derivative Financial Instruments

GAB sum both “Trade and other payables” and “Derivative Financial Instruments” in one item. Why do we treat “Derivative Financial Instruments” as part of “Account Payables”? Let see the footnote.

Derivatives are stated at fair value which is equivalent to the marking of the derivatives to market, using prevailing market rates. Foreign currency forward contracts is an agreement to buy or sell a country’s currency at a specific price, usually 30, 60, or 90 days in the future. This guarantees an exchange rate on a given date.

This means DIGI will liquidate the contracts at most 90 days in the future, and DIGI needs to pay “Loss arising from fair value changes”.

image

Provision for liabilities

As you can see from the footnote, “Site decommissioning and restoration costs”, “Defined benefit plan”, “Customer loyalty programme” and “Employee leave entitlement” are all defined in the “Account Payables” formula.

image

Deferred revenue

Deferred revenue is advance payments or unearned revenue, recorded on the recipient’s balance sheet as a liability, until the services have been rendered or products have been delivered. Deferred revenue is a liability because it refers to revenue that has not yet been earned, but represents products or services that are owed to the customer. As the product or service is delivered over time, it is recognized as revenue on the income statement.

So, it is part of “Account Payables”.

Taxation

Here, “Taxation” refers to “Current Tax Liabilities”, thus it is part of “Account Payables”

In conclusion, to calculate 2012 “Account Payables” for DIGI, 2,091,210 + 151 + 40,450 + 405,236 + 0 = 2,537,047

In EquitiesTracker, they helped you do this the hard works in calculating “Account Payables”. One catch though: they do not add “Current Tax Liabilities” to “Account Payables” because they want to show the trend of taxation. So, we need to manually add “Creditors / Payables” and “Taxation” to get the real “Account Payables”.

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