| Transaction |
Amount |
Working capital |
Cash |
| Performed services on credit |
$150,000 |
Increase A/R |
|
| Purchased PP&E for cash |
10,000 |
Decrease cash |
-$10,000 |
| Recognized salaries expense |
54,000 |
Increase A/P |
|
| Purchased paint supplies on on credit |
25,000 |
Increase inventories, increase A/P |
|
| Consumed paint supplies |
20,000 |
Decrease inventories |
|
| Paid salaries |
50,000 |
Decrease cash, decrease A/P |
-$50,000 |
| Collected accounts receivable |
157,000 |
Increase cash, decrease A/R |
+$157,000 |
| Recognized straight-line depreciation expense |
2,000 |
|
|
| Paid accounts payable |
15,000 |
Decrease cash, decrease A/P |
-$15,000 |
The change in cash was $82,000 ($157,000 collections – $10,000 from equipment purchase – $50,000 salaries paid – $15,000 for payables).
Working capital at the end of 20X7 is $416,000 ($350,000 beginning working capital + $150,000 increase in accounts receivable from services – $10,000 office equipment purchase – $54,000 salaries expense accrual – $20,000 consumed supplies).
- Purchasing $25,000 of paint supplies on credit has no net effect on working capital (current assets and current liabilities increase). Consuming $20,000 of these supplies reduces working capital (current assets decrease).
- Salary expense reduces working capital by $54,000 when recognized (current liabilities increase). Paying $50,000 of these salaries has no net effect on working capital (current assets and current liabilities decrease).
- Collecting accounts receivable has no net effect on working capital (one current asset increases and another decreases).
- Recognizing depreciation does not affect working capital.
- Paying accounts payable has no net effect on working capital (current assets and current liabilities decrease).
