Question

Smoltz company had $375,000 of current assets and $135,000 of current liabilities before borrowing $90,000 from the bank with a 3 month note payable. what effect did the borrowing transaction have on the amount of smoltz company's working capital?

Answer 1

The borrowing transaction WILL INCREASE THE WORKING CAPITAL OF SMOLTZ COMPANY BY $90,000.00.
Working capital is defined as the amount of a company's asset that can be converted into cash in the near future, taking into account the payment which has to be made. Borrowing money increases the amount of working capital that a company has.