What is the correct method for calculating working capital?
A) Total Assets minus Total Liabilities
B) Current Assets minus Total Liabilities
C) Current Assets minus Current Liabilities
D) Current Assets plus Current Liabilities

Question

Quizplus · Accepted Answer

Working capital is calculated by subtracting current liabilities from current assets. This represents the amount of funds that a company has available to cover its current liabilities and operating expenses. Option A includes non-current assets in the calculation, which are not readily available for immediate use in meeting current obligations. Option B only subtracts total liabilities and does not differentiate between current and non-current liabilities. Option D adds current assets and current liabilities together, which does not provide an accurate representation of a company's ability to meet its short-term obligations.

What Is the Correct Method for Calculating Working Capital