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.

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. A decrease in cash (a current asset) could be offset by a decrease in a current liability (like accounts payable), leaving net working capital unchanged. Therefore, a decrease in cash may or may not affect net working capital, depending on changes in other current assets or liabilities.

Which One of the Following Statements Concerning Net Working Capital