Which of the following will cause working capital to increase?
A) A decision to tighten credit and collections policies
B) A decision to carry higher levels of inventory
C) A decision to take increased advantage of suppliers trade credit
D) Both b. and c. above will increase permanent working capital.
E) All of the above will increase permanent working capital.

Question

Quizplus · Accepted Answer

Carrying higher levels of inventory will increase the current assets and therefore increase working capital. Tightening credit and collections policies may reduce accounts receivable, but it will also reduce sales, and therefore may not increase working capital. Taking increased advantage of suppliers' trade credit may increase accounts payable, but it may also lead to a reduction in cash and working capital.

Which of the Following Will Cause Working Capital to Increase