A firm starts its year with a positive net working capital. During the year,the firm acquires more short-term debt than it does short-term assets. This means that:
A) the ending net working capital will be negative.
B) both accounts receivable and inventory decreased during the year.
C) the beginning current assets were less than the beginning current liabilities.
D) accounts payable increased and inventory decreased during the year.
E) the ending net working capital can be positive, negative, or equal to zero.

Question

Quizplus · Accepted Answer

The ending net working capital can be positive, negative, or zero depending on the amounts of short-term debt acquired and short-term assets acquired. The net working capital is the difference between current assets and current liabilities, and acquiring more short-term debt than assets does not necessarily mean the net working capital will be negative.

A Firm Starts Its Year with a Positive Net Working