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Management AccountingWorking Capital
Working capital is defined by experts as follows -
“Working capital is the amount of funds necessary to cover the cost of operating the
enterprises.”
“Circulating capital means current assets of a company that are changed in the ordinary course
of business from one form to another, as for example, from cash to inventories, inventories to
receivables, receivables in to cash.
Broadly, there are two types of capital required for a business:
Fixed Capital
Working Capital
Fixed capital requires investing in long term investments of business to create production facility
through purchase of fixed assets such as building, plant, machinery, furniture etc. Investment in
these assets means permanent blockage of capital or for a long term fixed term blockage of
funds.
Capital is required for short term purposes to purchase raw material, payment of day to day
needs of organization, routine business expenditure, payment of salaries, wages, taxes etc.
These funds are called working capital. Working capital refers to capital to finance short term or
current assets such as cash, securities, debtors and inventories.
Gross Working Capital and Net Working Capital
Gross working capital means the investment in current assets, whereas the Net working capital
means the difference of current assets and current liabilities. Net working capital can be positive
or negative.
NET WORKING CAPITAL
(A) Current Assets
Cash in hand XXX
Cash at Bank XXX
Sundry Debtors XXX
Bills receivables XXX
Inventories of Stock
Raw Material XXX
Workin-Process XXX
Finished Goods XXX
XXX
Short Term Investments XXX

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Management AccountingWorking Capital Working capital is defined by experts as follows “Working capital is the amount of funds necessary to cover the cost of operating the enterprises.” “Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another, as for example, from cash to inventories, inventories to receivables, receivables in to cash.” Broadly, there are two types of capital required for a business: Fixed Capital Working Capital Fixed capital requires investing in long term investments of business to create prod ...
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