Skip to main content

Working capital cycle AO2

AO2 You need to be able to: Demonstrate application and analysis of knowledge and understanding Command Terms: These terms require students to use their knowledge and skills to break down ideas into simpler parts and to see how the parts relate: Analyse, Apply, Comment, Demonstrate, Distinguish, Explain, Interpret, Suggest

The accounting definition of working capital is:

Working capital = Current assets - current liabilities

Stock + debtors + cash minus Creditors + overdrafts + short-term loans

There is, in most businesses, a significant delay between paying out for the raw materials and labour required to produce the goods or services and the receipt of cash from the sale of the goods/services. This means that for most businesses their working capital (their net current assets) needs to be very carefully managed.

If you would prefer to view this interaction in a new web window, then please follow the link below: