Question

accounts receivable increased by $1,000, inventory increased by $5,000, accounts payable decreased by $3,000, and accumulated depreciation increased by $4,000. The cash effect of changes in net working capital was

Answer 1

- $9,000

Step-by-step explanation:

Operating activities: It includes those transactions which affect the working capital after net income. The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added.

These changes in working capital would be adjusted

So, the cash effect would be

= - Increase in accounts receivable - increase in inventory - decrease in account payable

= - $1,000 - $5,000 - $3,000

= - $9,000

The accumulated depreciation is not a part of the working capital. Hence, ignored it