Current assets minus current liabilities equals what?

Current assets minus current liabilities equals what?

• A. Net Assets
• B. Capital
• C. Current Assets
• D. Net Current Assets/Working Capital

Answer: (D)

The main idea here is liquidity—the ability to cover short-term obligations with assets that can be turned into cash quickly. Subtracting current liabilities from current assets gives net current assets, also called working capital. This tells you how much cushion a business has to fund day‑to‑day operations. If current assets exceed current liabilities, there’s positive working capital, indicating the firm can meet its short-term commitments more easily. If liabilities outweigh assets, liquidity may be tight. Remember, current assets include items like cash, inventory, and accounts receivable, while current liabilities are debts due within a year, such as payables and short‑term loans. Net assets is the broader concept of total assets minus all liabilities (not just current ones), capital refers to invested funds or owner’s equity, and a plain current assets figure isn’t showing the available short‑term cushion. So the result described is net current assets, i.e., working capital.

The main idea here is liquidity—the ability to cover short-term obligations with assets that can be turned into cash quickly. Subtracting current liabilities from current assets gives net current assets, also called working capital. This tells you how much cushion a business has to fund day‑to‑day operations. If current assets exceed current liabilities, there’s positive working capital, indicating the firm can meet its short-term commitments more easily. If liabilities outweigh assets, liquidity may be tight. Remember, current assets include items like cash, inventory, and accounts receivable, while current liabilities are debts due within a year, such as payables and short‑term loans. Net assets is the broader concept of total assets minus all liabilities (not just current ones), capital refers to invested funds or owner’s equity, and a plain current assets figure isn’t showing the available short‑term cushion. So the result described is net current assets, i.e., working capital.