What is Working Capital?

Business Habit ⋅ @businesshabit ⋅ Nov 01, 2015

Working capital is required to operate the day to day activities of the organization. Working capital is the amount of a company's current assets minus the number of its current liabilities.

The working capital is calculated as:

There are two concepts of working capital such as:

1. Gross working capital

2. Networking capital

Gross working capital: Gross working capital is the total of current assets.

Net Working Capital: Net Working Capital is the difference between current assets and the current liabilities.

Some important points:

1. Finished goods are calculated on the cost of production.

2. Debtors/accounts receivable is calculated on the cost of sales/ sales price.

3. If the completion period /stage is not given it is assumed that material will be used at the beginning of the production and labor and overhead will be at 50% completion stage.

4. profit will not be considered in the working capital completion mainly because it is not a source of financing working capital.

5. Production will be carried out through the year and labor and overhead will be used similarly.

Preveius Address: What is Working Capital?

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