Funds flow statement query

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Why decrease in net working capital is considered as a source of funds?

Replies (1)

WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

DECREASE IN WORKING CAPITAL MEANS:-

  1. EITHER DECREASE IN CURRENT ASSETS
  2. OR INCREASE IN CURRENT LIABILITIES.

EXAMPLE: 

DECREASE IN CURRENT ASSETS

  • DEBTORS (31.03.2011) = RS. 20,000
  • DEBTORS (31.03.2012)= RS. 10,000  ==> SOME MONEY RECEIVED FROM DEBTORS ==> FUND
  • DECREASE IN WC = RS. 10,000

INCREASE IN CURRENT LIABILITIES

  • CREDITORS (31.03.2011) = RS. 50,000
  • CREDITORS (31.03.2012) = RS. 80,000 ==> SOME MONEY RECEIVED FROM CREDITORS==> AGAIN FUND
  • INCREASE IN WC = RS. 30,000

 

I HOPE YOU UNDERSTOOD!!!!

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