If accounts receivable increase by $1,000,000, inventory decreases by $500,000, and accounts payable increase by $500,000, net working capital would ________.
A) decrease by $500,000
B) increase by $1,500,000
C) increase by $2,000,000
D) experience no change

Question

Quizplus · Accepted Answer

Net working capital is calculated as current assets minus current liabilities. An increase in accounts receivable (a current asset) increases net working capital, while a decrease in inventory (also a current asset) decreases it. An increase in accounts payable (a current liability) also decreases net working capital. However, the increase in accounts receivable and the increase in accounts payable exactly offset the decrease in inventory, resulting in no net change in working capital.

If Accounts Receivable Increase by $1,000,000, Inventory Decreases by $500,000