Which One of the Following Will Increase Net Working Capital

question 414

Multiple Choice

Which one of the following will increase net working capital? Assume that the current ratio is greater than 1.0.

• A) Using cash to pay an accounts payable.
• B) Using cash to pay a long-term debt.
• C) Selling inventory at cost.
• D) Collecting an accounts receivable.
• E) Using a long-term loan to buy inventory.

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Definitions:

COGS

Cost of Goods Sold, representing the direct costs attributable to the production of the goods sold by a company.

Operating Cycle

The duration of time from the acquisition of goods for inventory to the sale of the goods and the collection of payment.

Inventory Turnover

A measure of how quickly a company sells and replaces its stock of goods during a certain period, indicating efficiency in managing inventory.

Receivables Turnover

A measure of a company's efficiency in collecting its sales on credit, calculated by dividing sales by average accounts receivable.