Smith Corporation entered into the following transactions:
Purchased inventory on account.
Collected an account receivable.
Purchased equipment using cash.
Which of the following statements is correct?
A)The inventory purchase on account increased working capital.
B)Collecting an account receivable increases working capital.
C)The equipment purchase decreases working capital.
D)The inventory purchase on account increased the quick ratio.

Question

Smith Corporation entered into the following transactions:
 Purchased inventory on account.
Collected an account receivable.
 Purchased equipment using cash.
Which of the following statements is correct?
A)The inventory purchase on account increased working capital.
B)Collecting an account receivable increases working capital.
C)The equipment purchase decreases working capital.
D)The inventory purchase on account increased the quick ratio.

Quizplus · Accepted Answer

The cash payment decreases current assets and therefore working capital. The equipment is a long-term asset.

Smith Corporation Entered into the Following Transactions