Other things held constant, which of the following will cause an increase in net operating working capital?
A) Cash is used to buy marketable securities.
B) A cash dividend is declared and paid.
C) Merchandise is sold at a profit, but the sale is on credit.
D) Missing inventory is written off against retained earnings.

Question

Quizplus · Accepted Answer

Selling merchandise at a profit on credit means an increase in accounts receivable, which is a component of net operating working capital. The other choices do not affect net operating working capital in a positive way. A) Buying marketable securities means a decrease in cash, which is a component of net operating working capital. B) Declaring and paying a cash dividend means a decrease in cash, which is a component of net operating working capital. D) Writing off missing inventory against retained earnings means a decrease in retained earnings, which is not a component of net operating working capital.

Other Things Held Constant, Which of the Following Will Cause