Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

A business that wants to increase its working capital can take which of the following actions?

Pay off long-term debt using cash

Increase dividends paid to shareholders

Increase net sales by offering discounts to customers who pay early

Purchase additional inventory on credit

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Verified step by step guidance

Understand the concept of working capital: Working capital is calculated as Current Assets minus Current Liabilities. It represents the liquidity available to a business for day-to-day operations.

Analyze the impact of paying off long-term debt using cash: Paying off long-term debt reduces cash (a current asset), which decreases working capital. This action does not help increase working capital.

Evaluate the effect of increasing dividends paid to shareholders: Dividends are paid out of retained earnings and cash. Increasing dividends reduces cash (a current asset), which decreases working capital. This action does not help increase working capital.

Consider the impact of increasing net sales by offering discounts to customers who pay early: Offering discounts encourages customers to pay sooner, which increases cash inflow and reduces accounts receivable (a current asset). This action improves liquidity and increases working capital.

Assess the effect of purchasing additional inventory on credit: Purchasing inventory on credit increases inventory (a current asset) and accounts payable (a current liability). Since both current assets and current liabilities increase, the net effect on working capital depends on the relative amounts. This action may not necessarily increase working capital.