Question
Download Solution PDFWhich one of the following will have a net change in the amount of working capital of a company?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Purchasing machinery for cash
Key Points
- Working capital is the amount of money required for the day-to-day operations of a company.
- It is basically required for purchasing raw materials, to make payments to the creditors, for handling the inventory (to bear the inventory carrying costs), to deal with reduction in sales, to make payments to the employees etc.
- In contrast to working capital, converting long-term loans or debentures into equity deals with long-term financial activities.
- The long-term financial activity of buying land and paying for it by issuing shares to the landowner is classified as an investment and falls under the capital budget category.
- Working capital, which is a component of current obligations, is used to pay creditors in cash.
- Long-term or capital finance activities include the cash purchase of machines.
- Formula of Working Capital
= Current Assets - Current Liabilities
Hence, the correct answer is Purchasing machinery for cash.
Last updated on Jun 6, 2025
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