Your Help on a Past Exam Question F3

[Michel]

Dear Sir / Madam,

Would anyone help on the below question, more specifically on the workings?
With thanks.

A company had the following transactions:
1. Goods in inventory that had cost $1,000 were sold for $1,500 cash.
2 .A credit customer whose $500 debt had been written off paid the amount in full.
3 .The company paid credit suppliers $1,000
What will be the combined effect of these transactions on the company’s total working capital (current assets less current liabilities)?
A. Increase of $1,000
B. Working capital remains unchanged
C. Increase of $2,000
D. Increase of $3,000

[Sonal]

I think answer should be A i.e. increase in net current assets by $1,000

[Sonal]

In such kinds of questions, try to dealt with journal entries.

1. cash will be debited by $1,500 and inventory will be credited by $1,000. hence, increase in working captal will be $500
2. cash will be debited by $500 but customers' account will not be credited as it is treated as other income. hence, here also increase in working capital of $500
3.suppliers' account will be debited and cash will be credited by $1,000. here working capital will remain unchanged.

combined effect of all above three transactions:
$500 + $500 + NIL = $1,000 (increase in working capital)