Assume the following information from the financial statements of ReStateM Company:
Net income $10,000
Depreciation expense $3,000
Salaries expense $5,000
Deferred income taxes $2,000
Change in accounts receivable $4,000
Change in accounts payable -$5,000
Change in inventory -$2,000
Capital expenditures $4,000
The change in net working capital for ReStateM Company is:
A)Increase $7,000
B)Decrease $7,000
C)Increase $2,000
D)Decrease $2,000

Question

Quizplus · Accepted Answer

The change in net working capital (NWC) is calculated as follows:
NWC = Change in current assets - Change in current liabilities
NWC = (Change in accounts receivable + Change in inventory) - Change in accounts payable
NWC = (4,000 - 2,000) - (-5,000)
NWC = 7,000
Since NWC decreased by $7,000, the answer is B which is Decrease $7,000.

Assume the Following Information from the Financial Statements of ReStateM