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CMA Intermediate · Financial Management and Business Data Analytics · Fund Flow Statement - Preparation and Analysis

In a Statement of Changes in Working Capital prepared from two balance sheets, an increase in which of the following items results in a decrease in working capital?

An increase in bills payable reduces working capital, because it is a current liability. Working capital is current assets less current liabilities, so a higher liability lowers it, while higher debtors, stock or cash cause working capital to rise.

  1. ASundry debtors
  2. BClosing stock
  3. CBills payableCorrect
  4. DCash at bank

Explanation

Working capital equals current assets minus current liabilities. An increase in a current liability such as bills payable reduces working capital. Increases in debtors, stock and cash are all increases in current assets and so raise working capital.

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