Question

Net working capital increases when a. fixed assets are purchased for cash. b. inventory is purchased...

Net working capital increases when
a. fixed assets are purchased for cash.
b. inventory is purchased on credit.
c. inventory is sold at cost.
d. a credit customer pays for his or her purchase.
e. inventory is sold at a profit.
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Answer #1

Net working capital is the difference between current assets and current liabilities. So For working capital to increase, current asset must increase.

When inventory are sold and if it is sold at profit that means that the current asset would decreasing by the amount of book value of the inventory and current asset would be increasing by the sales value in form of cash that should be higher leading to a higher current assets.

Rest of the statements are not an increase in the current asset of the firm so they will never lead to an increase in the working capital.

Show the correct answer would be option (e) inventory is sold at a profit.

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