- This topic has 1 reply, 2 voices, and was last updated 6 years ago by .
Viewing 2 posts - 1 through 2 (of 2 total)
Viewing 2 posts - 1 through 2 (of 2 total)
- You must be logged in to reply to this topic.
OpenTuition recommends the new interactive BPP books for December 2024 exams.
Get your discount code >>
Forums › ACCA Forums › ACCA FM Financial Management Forums › Why inventory increase doesnt affect working capital
This is the question i came across in BPP revision book:
Gorwa Co’s working capital is most likely to increase in which of the following situations?
a/ Payments to suppliers are delayed
b/ The period of credit extended to customers is reduced
c/ Non-current assets are sold
d/ Inventory levels are increased
The answer is C and the explaination is ” other situations have limit or no effect on working capital”.
My question is why the increase of inventory level doesnt affect working capital? Because clearly based on the formula ” Working capital= Receivables + Cash + Inventory – Payables” inventory increase will result in higher working capital.
Thank you in advance for giving me a help.
Working capital= Receivables + Cash + Inventory – Payables
Inventory increasing means cash decreases or payables increases, that’s why Working Capital does not change.