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Hi, [FIRST NAME GOES HERE]
This week’s “Accounting Guide” is about working capital
Concept description
What is working capital?
Working capital is the difference of current assets and current liabilities of a company. This difference amount depicts the liquidity position of a company. Liquidity position is the ability of a company to meet its day-to-day operational obligations.
Working capital could be positive, neutral or negative. Negative or positive working capital; which is better? depends on company’s assets and operational abilities.
| Know more about Working Capital |
Working Capital Formula
Where,
Current assets include
- cash
- cash equivalents
- accounts receivable
- stock inventory
- marketable securities
- pre-paid liabilities
- other liquid assets
Current Liabilities include
- accounts payable
- short-term debt
- dividends
- notes payable
- income taxes owed
[FIRST NAME GOES HERE]Do you know????
Accountants use more variations of this formula to find the exact working capital amount needed for company’s operational activities.
Formula-1
• Working Capital = (Current Assets – Cash) – (Current Liabilities – Short-term Debts)
Formula-2
• Working Capital = Account Receivable + Inventory – Account Payable
Practice exercise
Woohoo, here is your promised practice exercise for working capital.. Click the link below
Practice Exercise Solution Hints
Wonder! How to solve these questions????
Well, [FIRST NAME GOES HERE] No worries!
I am here to help you!!
Remember
- The amounts required for calculating working capital are present in the balance sheet.
- Current assets appear in the order of liquidity in a classified balance sheet.
- Current assets are those resources that can be utilized within a financial year of a company.
- Current liabilities are those obligations which are due within a financial year.
- Working capital is the difference between current assets and current liabilities.
Steps to calculate working capital
- Identify current assets
- Identify current liabilities
- Calculate the difference between them
Waoowww BONUS!!!
Keys of practice exercise
- $600
- $30,000
- $4,500
- -$4,265
- $2,450,000
Phew…. It’s too much hannn
Don’t worry dear [FIRST NAME GOES HERE] you have the whole week to work and practice working capital exercises. You can tally your answers with the keys of practice exercise.
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