Question

In January 20X3, Elliott Industries recorded the following transactions:

1. Paid bills from 20X2 totaling $120,000 and collected $150,000 for sales that were made in 20X2.
2. Purchased inventory on credit totaling $500,000, 30% of which remained unpaid at the end of January.
3. Sold $375,000 of inventory on credit for $550,000, 20% of which remained uncollected at the end of the month.
4. Accruals increased by $12,000 during the month.
5. Made additional cash payments for expenses incurred during the month totaling $90,000.

Compute the change in Elliott's working capital for the month of January 20X3. (Hint: Each transaction has offsetting entries that sum to zero. If all of the entries are to current accounts, there's no impact on working capital. But if one side is somewhere else, working capital will change.)

Answer 1

1. Journal Entries -

2. Working Capital -

Explanation -

In the first 2 entries there is null effect in current assets and current liabilities. In the same value current assets and current liabilities are decreasing.

In the 3rd entry current assets are increased and in the 4th entry current liabilities are increase by $12,000 and 5th entry current assets decreased by $90,000.

Hence working capital is $448,000.