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 and assets acquired. The firm started with positive net working capital, so even if more short-term debt is acquired than short-term assets, the ending net working capital could still be positive if the initial amount was sufficiently large.

A ﬁRm Starts Its Year with a Positive Net Working