If income is recorded on a company’s book on the day it is received (and not on

Question

If income is recorded on a company’s book on the day it is received (and not on the invoice date) and costs on the date of payment, would this generate working capital? If so, how would this working capital differ from the working capital as collected today? If income is recorded on a company’s book on the day it is received (and not on the invoice date) and costs on the date of payment, would this generate working capital? If so, how would this working capital differ from the working capital as collected today?

Explanation / Answer

Net working capital is calculated by Current Assets minus current liability. Items in current assets include Cash, Account receivables, Inventory, and other current assets. Current liabilities includes, Short term debt, account payables, and other current liabilities.

If a Company record income on the date when company receive cash and record cash when it pay cash to supplier. in this case value of account payable and value of account receivables become zero. So, current assets of company includes only Cash, Inventory, and other current assets, and current liability includes Short term debt, and other current liabilities.

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