Question

Net working capital increases when: Multiple Choice inventory is sold at cost. fixed assets are purchased for cash. inventory is purchased on credit. inventory is sold at a profit. a credit customer pays for his or her purchase.

Answer 1

Answer:

d. inventory is sold at a profit

Explanation:

Net working capital increases when inventory is sold at a profit

Net working capital = Current Assets - Current Liabilities . Cash, Inventory and receivables are part of current assets

Hence, when inventory is sold at profit, cash received is more than decrease in inventory and hence, current asset increase and hence, working capital increases. When it is sold at cost, it remains the same. Purchase of inventory on credit will lead to same amount increase in current assets and current liabilities. Payment by customer will lead to increase in cash and decrease in accounts receivable, Hence, no impact