Gujarat BoardEnglish MediumSTD 12 CommerceOCMFINANCIAL MANAGEMENT5 Marks
Question
Giving the definition, explain the concepts of working capital.
✓
Answer
Introduction :
Fixed capital is required to establish business and to maintain the business and for day-to-day expenses working payment of salary to employees, to purchase raw material, to make payment o creditors and business activity may stuck.
So it is necessary to consider working capital carefully.
Definition of working capital :
As per simple definition, “the capital which is required for making payment of day-to-day expenses and which is occupied in current assists and continuously moving in circulation is called working capital.”
According to Lincoln’ Doris and Stevens, “Working capital is the excess of current assists over current liability.”
According to J.S. Mill, “the sum current assists means the working capital.”
“Working capital is required in business to make payment of day-to-day expenses, such as salary, labour, stationary, telephone and electricity bill, retail instrument, raw material etc. Working capital is constantly circulating in business so it is called life blood.”
Concept o working capital : There are two concepts of working capital.
Gross working capital :
Sum of total investment in current assists of business such as raw material, finished goods, debtors, bill receivable, short term securities, cash bank balance etc.
Formula : Gross working capital = Total current assists.
Net working capital :
Net working = Current assists – Current liabilities.
Net working capital can be obtains by deducting total current liabilities from gross current assists.
Current liabilities :
Current liabilities include creditors, bills, payable, expenses to be paid, short term bank loan, bank over draft, proposed dividend, provision for taxation etc.
When assists exceed current liabilities it is called positive working capital.
When current liabilities exceed assists it is called negative working capital.
Need a full question paper?
Generate a complete, print-ready paper with questions like this in minutes — across 16+ boards, with answer keys.