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A company has the following transactions.
1. The company receives payment of $1,000 from a credit customer.
2. Goods held in inventory that cost $2,000 were sola for $2,500.
3. A supplier agrees to reduce the amount payable on an invoice by $500 by
issuing a credit note. There is no return of goods to the supplier.
What is the combined effect of these transactions on the company’s total working capital (current assets minus current liabilities)?
A Working capital remains the same
B Increase of $500
C Increase of $1,000
D Increase of $1,500
Sir, everything is clear in this question but only 3nd statement isn’t clear for me..what does it mean the sentence above -“There is no return of goods to the supplier” Is it means that only payable is reduced and purchase return isn’t increased so it affects to working capital?
Thanks in advanceYou would normally only expect to receive a credit note if you had returned goods.
However here we had not returned goods, and so the supplier must simply have agreed to reduce the price they are charging us. So our payables reduce (and therefore working capital will increase).
If there would be purchase return in this case working capital will not change..is it true?
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