Multiple choice

Goods are purchased for Rs. 20,000 from Rahul on 1st January for which Rs. 5,000 are paid in cash to Rahul immediately. The combined effect of both these transactions will

  1. increase in working capital by Rs. 20,000

  2. have no effect on the working capital

  3. decrease in working capital by Rs. 5,000

  4. none of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

There will be no effect on the working capital.
Stock coming in is of Rs. 20,000 and cash paid is of Rs. 5000, i.e. current assets are increased by Rs. 15,000. However, the creditors, i.e. current liabilities are also increased by Rs. 15,000. Thus, the net effect on working capital is nil.

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