# Effect of Transactions on Working Capital
When 'funds' are defined as Working Capital (CA − CL), only transactions affecting one non-current item and one current item alter funds. Transactions affecting two current items or two non-current items have NO effect.
## Test Cases
### (i) Purchase of a Fixed Asset on 2 Months' Credit
Outflow of funds.
- Total Current Liabilities increase (Creditor for FA).
- Total Current Assets unchanged.
- ⇒ WC decreases.
### (ii) Sale of Fixed Asset (Book Value ₹8,000) at a Loss of ₹7,000
Sale value = ₹8,000 − ₹7,000 = ₹1,000 received in cash.
Inflow of funds.
- Current Assets increase (cash).
- Current Liabilities unchanged.
- ⇒ WC increases.
### (iii) Payment of Final Dividend Already Declared
No effect on WC.
- Both Current Assets (cash) and Current Liabilities (dividend payable) decrease equally.
Alternate view: If proposed dividend was treated as a non-current liability, then paying it would be an outflow of funds.
### (iv) Writing off Bad Debts against Provision for Doubtful Debts
No effect on WC.
- Both the Provision and Debtors are inside the current assets section (Debtors are shown net of provision).
- Neither total CA nor total CL changes.
## Summary Table
| Transaction | Effect on WC |
|---|---|
| Purchase FA on credit | Outflow |
| Sale of FA at loss | Inflow |
| Payment of declared dividend | No effect (or outflow if proposed dividend = non-current) |
| Bad debts written off against provision | No effect |
## Rule of Thumb
Ask: 'Does this transaction touch at least one non-current item AND one current item?'
- YES → it changes WC.
- NO → no effect.