A decrease in current assets and an increase in current liabilities will ________ net working capital, thereby ________ the risk of insolvency.
A) increase; increasing
B) decrease; increasing
C) increase; reducing
D) decrease; reducing

Question

Quizplus · Accepted Answer

A decrease in current assets and an increase in current liabilities will decrease net working capital, meaning that the firm has less funding available for its daily operations. This increases the risk of insolvency as the company may not have enough cash to meet its short-term obligations.

A Decrease in Current Assets and an Increase in Current