D. Dlodlo, a retailer, sold goods with a cost price of $8 500 on credit to A. Mashamba for$ 9 500. What is the effect of this transaction on working capital: increase, decrease, or no effect?

Model answer

increase

Explanation: A credit sale converts inventory (an existing current asset) into a debtor for a higher amount, and profit on the sale increases net current assets, so working capital increases.

Derived from ZIMSEC Principles of Accounts 7112/2 Paper 2, November 2014 Specimen Paper, Q3

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D. Dlodlo, a retailer, sold goods with a cost price of 8500oncredittoA.Mashambafor8 500 on credit to A. Mashamba for 8500oncredittoA.Mashambafor9 500. What is the effect of this transaction on working capital: increase, decrease, or no effect?

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D. Dlodlo, a retailer, sold goods with a cost price of $8 500 on credit to A. Mashamba for$ 9 500. What is the effect of this transaction on working capital: increase, decrease, or no effect?