Other things held constant,which circumstance 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

When merchandise is sold at a profit but the sale is on credit, it will result in an increase in accounts receivable and thus an increase in net operating working capital. Options A and B describe situations where cash is either used for investments or distributed to shareholders, both of which would decrease net operating working capital. Option D involves a write-off, which would decrease both assets (inventory) and equity (retained earnings), resulting in no net change in net operating working capital.

Other Things Held Constant,which Circumstance Will Cause an Increase in Net