Question

Which one of the following statements concerning net working capital is correct?
A. Net working capital increases when inventory is purchased with cash.
B. Net working capital must be a positive value.
C. Total assets must increase if net working capital increases.
D. A decrease in the cash balance may or may not decrease net working capital.
E. Net working capital is the amount of cash a firm currently has available for spending.

Answer 1

Answer:

D

Explanation:

Net working assets is current assets less current liabilities

Current assets include cash, cash equivalents and inventory

Examples of current liabilities include accounts payables, short-term debt, accrued expenses, and dividends payable

When inventory is purchased with cash, inventory increases and cash reduces, thus there is no change in net working capital

Net working capital can be negative or positive.

If current assets is greater than current liabilities, it would be positive, if this is not the case, it would be negative.