Which one of the following will decrease the net working capital of a firm?
A)Obtaining a three-year loan and using the proceeds to buy inventory
B)Collecting a payment from a credit customer
C)Obtaining a five-year loan to buy equipment
D)Selling inventory at a profit
E)Making a payment on a long-term debt

Question

Quizplus · Accepted Answer

Making a payment on a long-term debt will decrease the net working capital of a firm as it involves using cash to pay off a liability, reducing the current assets and current liabilities. Obtaining a loan or collecting a payment from a customer will increase the net working capital, as it increases the current assets. Selling inventory at a profit will also increase net working capital, as it increases both current assets and retained earnings. Buying inventory using a loan will increase the net working capital by increasing current assets, while obtaining a loan for equipment will not impact net working capital but will increase long-term liabilities.

Which One of the Following Will Decrease the Net Working