Rocket Corporation entered into the following transactions:
The accrual of wages and salaries expense.
The cash payment of a six-month note payable.
The cash payment in advance for a one-year insurance policy.
Which of the following statements is correct with respect to determining Rocket's working capital? Assume that Rocket's operating cycle is four months.
A)The accrual of wages and salaries expense decreases working capital.
B)The cash payment of the note payable decreases working capital.
C)The purchase of the insurance policy increases working capital.
D)The cash payments for the note and insurance both decrease working capital.

Question

Rocket Corporation entered into the following transactions:
The accrual of wages and salaries expense.
The cash payment of a six-month note payable.
 The cash payment in advance for a one-year insurance policy.
Which of the following statements is correct with respect to determining Rocket's working capital? Assume that Rocket's operating cycle is four months.
A)The accrual of wages and salaries expense decreases working capital.
B)The cash payment of the note payable decreases working capital.
C)The purchase of the insurance policy increases working capital.
D)The cash payments for the note and insurance both decrease working capital.

Quizplus · Accepted Answer

Accruing wages and salaries expense increases current liabilities which decreases working capital.

Rocket Corporation Entered into the Following Transactions