Question

a) A decrease in current liabilities increases working capital
b) Funds flow refers to change in long-term funds.
Of these

• A. Both (a) and (b) are true
• B. Both (a) and (b) are false
• C. (a) is true, but (b) is false
• D. (a) is false but (b) is true

Answer 1

Answer: (A)

Both (a) and (b) are true

(a) If a transaction increases current assets and current liabilities by the same amount, there would be no change in working capital, While decrease in Current liabilities increases working capital.

(b) Fund flow statements deals with the transactions which change either the amount of current assets and current liabilities (in the form of decrease or increase in working capital) or fixed assets, long-term loans including ownership fund.