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I don't have a tax question. But I do have an accounting…

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Hi there..I don't have...

Hi there..I don't have a tax question. But I do have an accounting question. I'm trying to figure out how to calculate Days Payable Outstanding (DPO) for a services company (legal, healthcare). It's very different than with a company that has a lower profit margin due to high COGS.

Submitted: 6 months ago.Category: Finance
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1/5/2018
Financial Professional: Megan C, Certified Public Accountant (CPA) replied 6 months ago
Megan C
Megan C, Certified Public Accountant (CPA)
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Thanks for your question

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Financial Professional: Megan C, Certified Public Accountant (CPA) replied 6 months ago

Thank you for your question. My name is ***** ***** I will be happy to help you today :-)

DPO is calculated the same way regardless - A/P divided by cost of sales. For a service firm, your cost of sales would include your direct costs. The calculation doesn't change, and to analyze what is a good DPO you would just need to look at other similar companies.

Please let me know if you need anything additional. If not, please rate postiive.

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Customer reply replied 6 months ago
Hi Megan. Thanks for the response. What do you mean by direct costs? Do you mean salaries? Also..is there a benchmark of DPO's for services firms that I can refer to?
Financial Professional: Megan C, Certified Public Accountant (CPA) replied 6 months ago

I don't have benchmarks available right with me, but I'm sure you could search MSN or another finance site and obtain them. It also depends on what service firm you're looking at - law firms would differ from healthcare and so on and so forth. Cost of goods sold and Cost of Sales are equivalent. So, just look at your income statement and the cost of sales should be stated as such.

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