Select Page

Concrete Examples Corresponding to Each General Rule

• Issue of equity shares causes an increase in cash (CA) and increase in non-current liability (NCL).
• Purchase of non-current assets (NCA) causes decrease in cash (CA) and increase in (NCA).
• Bank overdraft to repay long-term loans causes an increase in CL and decrease in NCL
• Bank overdraft paid by issue of debentures causes a decrease in bank overdraft. (CL) and an increase in NCL.
• Purchase of inventories on’ credit causes an increase in inventory (CA) and an increase in creditors (CL),
• Payment of creditors causes a decrease in cash (CA) and a decrease in creditors (CL).
• Purchase of machine by issue of debentures causes an increase in NCA and an increase in debentures (NCL).

A close examination of the above rules and illustrations shows that a transaction which gives rise to a source or use of working capital should affect both, the current account (CA or CL), and the non-current account (NCA or NCL) simultaneously, However, if a transaction occurs where either only current accounts |as shown in rules (e) and (f)| are, affected, working capital is not changed. Likewise, if both non-current accounts (g) are affected as a result of the transaction, it does not bring about any change in the working capital.

[vfb id=1]

Share This