The difference between the total sources of funds and the total uses of funds represents the increase or decrease in a firm's working capital.

Question

Quizplus · Accepted Answer

This statement is true. The difference between the total sources of funds (such as sales revenue, obtaining loans, or issuing equity) and the total uses of funds (such as paying expenses, purchasing inventory or equipment, or repaying loans) is known as the net increase or decrease in working capital. If the sources of funds exceed the uses of funds, the firm has a positive change in working capital, indicating the ability to finance its operating activities. However, if the uses of funds exceed the sources of funds, the firm has a negative change in working capital, indicating a potential liquidity problem.

The Difference Between the Total Sources of Funds and the Total