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  3. the term "working capital" refers to current asset

The term "working capital" refers to current assets. You can think of those assets as...

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Accounting

The term "working capital" refers to current assets. You can think of those assets as capital that works throughout the year. The term "net" often refers to cases when costs or other items, like liabilities) are subtracted out. So Net Working Capital represent Current Assets net of Current Liabilities. Solve for the net working capital below by following three steps

  1. Consider a firm with $893 in Cash, $1,190 in Accounts Receivable, $3,855 in Inventory, $6,977 in Property, Plant and Equipment. Calculate the Current Assets of the firm
    • (be careful about what is included in Current Assets)
  2. The same firm has $411 in Accurals, $938 in Accounts Payable, $1,744 in Notes Payable, $8,658 in Long term Debt and $4,575 in Retained Earnings. Calculate the Current Liabilities of the firm
    • (be careful about what is included in Current Liabilities)
  3. Now that you have Current Assets and Current Liabilites, use the formula from Section 3-2A to find Net Working Capital
    • Net Working Capital = Current Assets - Current Liabilities
    • Include your asnwer in dollars with no decimal example ($5040 or 5040 are both acceptable notation)

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