Question

Net working capital is equal to (non-cash) current assets minus current liabilities. Which of the following changes will result in an increase in net working capital of the firm?

a. Decrease in accounts payable
b. Decrease in accounts receivable
c. Decrease in inventories

Answer 1

a. Decrease in accounts payable

Step-by-step explanation:

We know that

Net working capital = Current assets - current liabilities

Plus,the question is also mentioned that

Net working capital = Non cash Current assets - current liabilities

That means if cash is changed it would not affect the net working capital

The decrease in account payable increases the net working capital as it comes under the current liabilities

And, the Decrease in accounts receivable

and Decrease in inventories decreases the net working capital