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the result of paying creditors is two influences :
first is decrease of cash which is inserted under current assets
second is decrease of creditors which is inserted under current liabilities at the same value
working capital = current assets - current liabilities
consequently ....... the company WC is remains constant
the third choice is true C
Third option C >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
........((( C ))) ........
( C ).............................
The correct answer in the third C
.................c .........................
Answer is "C"
as paying to creditors decrease cash which can decrease current assets but on the other side creditor also decrease so ultimately effect remain constant "working capital = current assets - current liabilities"
Answer is option C. As both the Creditors (if its a current liability) and Cash/Bank (Current asset) decrease by the same magnitude, the ultimate effect on working capital remains nil.
At the same time,if the creditor mentioned here is a long term or non-current liability, then option B is correct , i.e. working capital decreases because cash/bank (current asset)used to pay off long term creditor (non-current ;liability)
.....................c........................
It depends upon the financial situation of the company. If it is well then no need to worry otherwise the option is (a) Increased. Thanks.
