Relationship of Working Capital & Cash Dividends?
February 6, 2011 by Cash Flow Tips
Filed under More Cash Flow Answers
Can you answer bj_osterhout’s question about Cash Flow?:
Identify the effect of each of the following transactions on Working Capital (increase, decrease, or no effect)
Identify the effect of each of the following transactions on Working Capital (increase, decrease, or no effect)
A – To Record the Declaration of a Cash Dividend
B – To Record the Payment of a previously declared and recorded cash dividend.
C – To close the cash dividends declared account at the end of the accounting period.
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Cash Flow Feedback: A Decrease
B Decrease
C no effect
Cash Flow Feedback: Working capital is current assets minus current liabilities. Dividend is paid from Net Income. So there is no effect both are in different time frames and in different accounts. One is a balance sheet item and the other and income statement item. One happens at the end of the year and the other is requirement throughout the next financial year. So no effect.