The ideal position is to Working capital is the amount of cash a business can safely spend. There is a _____ between the volume of sales and the size of the working capital of a firm. Property is an example of a fixed asset. ‘Gross’ indicates that it is measured without subtracting any allowance for capital consumption; ‘domestic’ that it refers to investment in the country regardless of ownership. Working capital is essentially the capital that is required for a business to run on a regular basis. “net present value ”is the best method of evaluation of capital budgeting project. Maintaining an optimum level of inventory 2. ADVERTISEMENTS: The following points highlight the top three methods of working capital estimation. » MCQs » Accounting Multiple Choice Questions#1 1) We can say that the business is in profit, when: A) Assets exceed Expenditure B) Income exceeds Liabilities C) Income exceeds Expenditure D) Income exceeds Liabilities 2) According to the double entry system of accounting, an account that obtains benefit is: A) Credit B) Debit e) Goodwill is a non-current transaction. Thus the gross working capital is the capital invested in total current assets of the enterprise. c) Purchase of plant will mean decrease in working capital. 1. Define working capital. During the year, Mason Company’s current assets increased by $120,000, current liabilities decreased by $50,000, and net working capital The working capital over total assets ratio, sometimes referred to as the net working capital ratio, measures the net liquid assets of a business as a percentage of it’s total assets. 62. Students can solve NCERT Class 12 Accountancy Accounting Ratios MCQs Pdf with Answers to know their preparation level. The worthiness of an organisation’s working capital is subject to the industry in which it engages, its link with its suppliers and customers. It includes cash on hand, accounts receivable, inventory and short-term investments. Gross Working Capital Cash and short-term assets expected to be converted to cash within a year. 7. It's commonly defined as current assets minus current liabilities. A reasonable working capital reserve is treated as unavailable. d) Issue of capital will mean increase working capital. Gross working capital means amount of total current assets. Gross Working Capital: It refers to the firm’s investment in total current or circulating assets. In finance, "working capital" means the same thing as current assets minus current liabilities. Once you have completed the test, click on 'Submit Answers for Grading' to get your results. 66. Businesses use the calculation of gross working capital to measure cash flow. Working capital is a measure of the operational efficiency, liquidity and short-term financial health or solvency of the company. 63. Current assets are those assets which are bought in the ordinary course of business and converted into cash within a short period which is normally one accounting year. What is meant by variable working capital ? 2. Working capital may mean Gross Working Capital or Net Working Capital. What is Net working capital ? Gross Working Capital Gross working capital is the total amount of a company's current assets. These are assets that we repeatedly use over a long period. 7. It is the difference between total revenue earned from […] (c) Change in Working Capital, (d) Inflation effect. It makes up all those assets which can be readily converted into cash within an accounting period. Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entities. Gross working capital refers to the total current asset quantum possessed by a company at any given point in an accounting year. Accountancy MCQs for Class 12 Chapter Wise with Answers PDF Download was Prepared Based on Latest Exam Pattern. Working capital can be negative if current liabilities are greater than current assets. Working capital of a company is one of the most important measures in any financial statement that is also easy to calculate. This implies that profit before any deductions is called Gross profit. 2. We can also use the term ‘ fixed investment ‘ with the same meaning. A proposal is not a Capital Budgeting proposal if it: (a) is related to Fixed Assets, (b) brings long-term benefits, (c) brings short-term benefits only, (d) has very large investment. 2. It thus includes investment in the country by companies owned by non-residents, and excludes investment abroad by resident firms. Also explore over 113 similar quizzes in this category. It is a measure of a company’s liquidity and its ability to meet short-term obligations as well as fund operations of the business. Explain the concept of operating cycle. This … 69. g) Any transaction that increases working capital is an application of fund. Working capital is the difference between a company's current assets and current liabilities. 1- Quantitative or Gross Working Capital Concept; According to this concept Working capital is the total of the entire current asset. 63. Difference between gross profit and operating profit can be understood from their point of origin, deductions (if any), etc. MEANING OF WORKING CAPITAL:Gross Working Capital, Net Working Capital Aspects of Financial Management:WINNING THE CASH FLOW WAR, The Realization Concept: RECRUITMENT, SELECTION AND TRAINING:Job Description, Job Specification >> Gross Profit Vs Operating Profit Gross Profit The word Gross means “before any deductions”. In this method, working […] Working capital turnover ratio can be determined by: a) (Gross Profit/Working capital) b) (Cost of goods sold/Net sales) c) (Cost of goods sold/Working capital) d) … Operating Cycle Method. 66. A letter of credit is issued by a bank an the behalf of its customers. 3. In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Gross Working Capital is equal to Current Assets and Net Working Capital is equal to Current Assets less Current Liabilities. The methods are: 1. Positive direct correlation. Gross working capital means an amount of funds invested in the various forms of current assets in total. List out the various kinds of working capital. (B) Reasonable working capital reserve treated as unavailable. Regression Analysis Method 3. working capital is known as the circulating capital as it circulates in the business just like blood in the human body.” 1. Paying creditors on a timely basis 3. Net Working Capital:The term “Net Working Capital” has been defined in … Ans. What is meant by Gross working capital ? 64. Capital structure influence risk &return of the shareholders. Increased. Net Working Capital (NWC) is the difference between a company's current assets (net of cash) and current liabilities (net of debt) on its balance sheet. Having a cash reserve 4. Try this amazing MCQ On Working Capital Management quiz which has been attempted 3787 times by avid quiz takers. Percentage of Sales Method: It is a traditional and simple method of determining the level of working capital and its components. 2. Gross working capital by country of domicile is shown in Figure 17. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. A measure of total investment. What is meant by core current assets ? Inflation : Working capital requirement is also determined by price level changes. Managing short-term debts 5. Trading organization requires less working capital. The uses of working capital are: 1. Gross working capital is equal to current assets. Ans. Gross Working Capital vs Net working Capital . Financing permanent inventory buildup with long-term debt is an example of an aggressive working capital policy. Fixed assets are tangible assets that we cannot convert into cash easily. Meanwhile, the US and Russia have some of the lowest amount of gross working capital at 40-43% of sales. Net Profit Ratio Signifies:(a) Operational Profitability, (b) Liquidity Position,(c) Big-term Solvency,(d)Profit for Lenders. It is also called “Sales Profit”. Percentage of Sales Method 2. 3. Any working capital reserve is reasonable if it does not exceed 5 percent of the actual working capital expenditures of the issuer in the fiscal year before the year in which the determination of available amounts is Fixed capital is capital or money that we invest in fixed assets.In other words, money that we invest in assets of a durable nature. Under inflationary conditions the same level of inventory will require _____ investment in working capital. What can working capital be used for? Liabilities are not included in this calculation, so gross working capital offers only a … Much of the discrepancy by market is likely due to the composition of companies. Higher. 9. 4. For example, during inflation prices of raw material, wages also rise resulting in increase in working capital requirements. 2 working capital missteps to avoid. Capital intensive industries require _____ amount of working capital. Accounting Ratios are important tools used by (a) Managers, (b) Researchers,(c)Investors, (d) All of the above. Working capital represents the operating liquidity available to a business organization. It is a reflection of the current financial condition of a company that enables investors to know about the health (financial) of a company. In Capital Budgeting, Sunk cost is excluded because it is: (a) of small amount, Multiple Choice Questions: 1. 67. 5. Ans. Question 40. 6. 8. Operating Cycle/Turnover of Working Capital : Turnover means speed with which the working capital is converted into cash by sale of goods. 65. What is the concept of working capital ? This activity contains 10 questions. Don’t confuse short-term working capital needs and longer-term, permanent requirements; While it can be tempting to use a working capital line of credit to purchase machinery or real estate or to hire permanent employees, these expenditures call for different kinds of financing. 8. China has the largest gross working capital at 75% of sales, followed by Italy. Multiple-choice questions Try the multiple choice questions below to test your knowledge of this chapter. The ratio is an indicator of the short term liquidity and financial strength of the business and indicates it’s ability to finance short term obligations. 68. f) When one account is current and another a non-current it results in flow of funds. 1. This view places more emphasis on the quantitative aspect of working capital rather than its Qualitative aspect. Gross working capital does not account for current liabilities, but is simply the measure of total cash and cash equivalent on hand. 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