Working Capital
What is Working Capital?
Working capital is the difference between current assets and current liabilities.
![wc1](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc1.jpg)
How it Works
A business will have short term liability obligations.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc2.jpg)
This is usually mostly made up by money owed to suppliers.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc3.jpg)
Liabilities that need to be paid within the coming year are known as current liabilities.
![wc4](https://seeaccountingnow.online/wp-content/uploads/2021/06/wc4.jpg)
Management and analysts continually assess the business’s ability to meet these short term obligations.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc5.jpg)
The business’s ability to meet short term obligations depends upon the level of current assets.
![wc6](https://seeaccountingnow.online/wp-content/uploads/2021/06/wc6.jpg)
Current assets include money in the bank.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc7.jpg)
This money is available immediately.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc8.jpg)
Accounts receivable is also a current asset.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc9.jpg)
Most customers will pay what they owe in the coming year.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc10.jpg)
Inventory is also a current liability.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc11.jpg)
The business will sell its stock of inventory in the coming year.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc12.jpg)
To calculate working capital you deduct current liabilities from current assets.
![](https://seeaccountingnow.online/wp-content/uploads/2020/05/wc13.jpg)
© R.J. Hickman 2020