Question

9.4 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

Answer 1

Answer:

(a) revenues recognized and deferred,

a decrease in deferred revenues and a recognition of accrued revenues results in higher working capital (current assets increase while current liabilities decrease)

(b) cost of goods sold,

An increase in cost of goods sold results in a decrease of inventories, therefore, working capital decreases (less current assets)

(c) employee salary and wages

employee wages decrease cash (if they are paid) or increase wages payable (current liability) if they are not paid yet. It decreases working capital

(d) income tax expense.

income taxes decrease cash (if they are paid) or increase income taxes payable (current liability) if they are not paid yet. It decreases working capital