working capital

This topic has 3 replies, 3 voices, and was last updated 11 months ago by John Moffat.

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November 3, 2021 at 7:51 pm #639874
sadafwaheed1
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hello sir ! this question is from kit i am not able to understand the explanation given ,
answer is non currennt asset are sold
can you please explain me
Gorwa Co’s net working capital (ie current assets less current liabilities) is most likely to increase in which of the following situations?
? Payments to suppliers are delayed
? The period of credit extended to customers is reduced
? Non-current assets are sold
? Inventory levels are increased
i thought answer would be payments to suppliers are delayed
November 4, 2021 at 7:28 am #639888
John Moffat
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If payments to suppliers are delayed then payables (which are a current liability) will increase and therefore the working capital will decrease.
If non-current assets are sold, then cash will increase and therefore the working capital will increase.
February 25, 2022 at 5:24 pm #649344
HJohns
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@John Moffat Sir if If payments to suppliers are delayed then payables (which are a current liability) increases, there by increasing working capital. But isnt inventory from suppliers shown in the current assets will also increase, thereby maintaining the balance of working capital?.
February 26, 2022 at 11:01 am #649372
John Moffat
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Delaying payment supplies increases payables. They are a currently liability and so the working capital will decrease, not increase.
Delaying payment to supplies will not affect the inventory – the inventory has been purchased whether payment for them is delayed or not.
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