Question

Working Capital. Identify the working capital accounts related to (a) revenues recognized and deferred, (b) cost...

Working Capital. Identify the working capital accounts related to (a) revenues recognized and deferred, (b) cost of goods sold, (c) employee salary and wages, and (d) income tax expense. For each account, indicate whether an increase in the working capital asset or liability would be an addition or subtraction when reconciling from net income to cash flows from operations.

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Answer #1

a. Revenues recognized and deferred are addition to the working capital account “Deferred Revenue”b. Cost of goods sold are subtracted from the working capital account “Inventory”.

b. Cost of goods sold are subtracted from the working capital account “Inventory”.

C. Employee salary and wages paid are subtracted from the working capital accounts “Employee Salary Payable” and “Wage Payable”. Salary and wages yet to be paid would be an addition to these accounts.

d. Income tax expenses that are due are added to “Income Tax Payable”.

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