Question

Question 1:- If the net working capital is negative then it indicates that: a) Long tem funds have been used for financing short term assets. b) Long term funds have been used for financing long term assets. c) Short term funds have been used for financing long term assets. d) Short term funds have been used for financing short term assets.

Answer 1

Answer:

Working capital can be negative if a company's current assets are less than its current liabilities. Working capital is calculated as the difference between a company's current assets and current liabilities. This can happen if a company's current assets substantially decrease as a result of large one-time cash payments, or current liabilities increase due to significant credit extension resulting in an increase in accounts payable.

Explanation:

Answer 2

Answer:

If the net working capital is negative then it indicates that Short term funds have been used for financing long term assets.

Explanation:

Working capital that is temporarily negative typically means that the company has made a sizable cash outlay or that its accounts payable have increased significantly as a result of a sizable purchase from its vendors.

• Working capital is the difference between a company's current liabilities, such as accounts payable, short-term debt, dividends, and cash, and its current assets, such as inventories of raw materials and fixed goods. Important Information Net working capital can be positive or negative.
• A situation in which a company's current liabilities exceed its current assets as shown on the balance sheet of the company is implied by the term "negative net working capital."
• When short-term funds are used for long-term goals, such as fixed assets, this situation arises.
• Cash invested in fixed assets is one cause of negative net working capital. abnormal inventory loss Bad debts.
• Consistently sold at a loss goods Negative Net Working Capital denotes the use of short-term funds for fixed assets.
• a situation where a company's balance sheet shows that its current liabilities are greater than its current assets. When short-term funds are used for long-term goals, such as fixed assets, this situation arises.