Which one of the following will increase net working capital? Multiple Choice A decrease in cash....

Which one of the following will increase net working capital?

Multiple Choice

A decrease in cash.
An increase in accounts payable.
An increase in depreciation.
A profitable sale of inventory.
The write-off of a bad debt.

Solutions

Expert Solution

Correct answer is D profitable sale of inventory will increase net WC

Working capital = Current assets - Current liabilities

Change in Working capital = Change in Current assets - Change in Current liabilities

An increase in current asset/decrease in current liability will lead to an increase in working capital

On the other hand, An increase in current liability/ decrease in the current asset will lead to decrease in working capital

1. A decrease in cash = Decrease in CA = decrease in WC

2. An increase in accounts payable = Increase in CL = decrease in WC

3. An increase in depreciation. effects fixed asset which does not have an effect over working capital

4. A profitable sale of inventory will increase cash by more than decrease in inventory, leading to net increase in current asset = Increase in net working capital

5. Write off of debtors will reduce debtors balance = Decrease in Current asset = Decrease in Working capital

jeff jeffy answered 1 year ago

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