Question

Read the following statements:
i) "Working Capital is the amount of funds necessary to cover the cost of operating the enterprise."
ii) "Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another."

• A. (i) and (ii) both are correct
• B. (i) and (ii) both are false
• C. (i) is correct, but (ii) is false
• D. (i) is false, but (ii) is correct

Answer 1

Answer: (A)

(i) and (ii) both are correct

• Apart from the investment in fixed assets every business organisation needs to invest in current assets. This investment facilitates smooth day-today operations of the business.

Insufficient investment in current assets may make it more difficult for an organisation to meet its payment obligations.
Net Working Capital = CA – CL i.e. Current Assets - Current Liabilities

• Current assets keep revolving or circulating fast, the temporary working capital is also called revolving capital.