A firm starts its year with 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 must 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

Net working capital is calculated as current assets minus current liabilities. The acquisition of more short-term debt (a liability) than short-term assets would affect the net working capital, but without knowing the exact amounts and the initial net working capital, it's impossible to determine if the ending net working capital will be positive, negative, or zero. It depends on the initial state and the magnitude of changes in assets and liabilities.

A Firm Starts Its Year with Positive Net Working Capital