Which term is used for the measure of liquidity equal to current assets minus current liabilities?

Which term is used for the measure of liquidity equal to current assets minus current liabilities?

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

Answer: (B)

The measure of short-term liquidity is found by looking at what the business owns that can be turned into cash in the near term minus what it owes in the near term. This difference is Net Current Assets, also called Working Capital. It shows how much liquid resources are available to fund day-to-day needs and to meet short-term obligations. Why this is the best fit: subtracting current liabilities from current assets directly reveals the amount available to cover debts due within a year. A positive figure indicates there are enough liquid resources to pay those short-term obligations; a negative figure signals potential liquidity problems. For context, current assets include items like cash, stock, and money owed by customers, while current liabilities include short-term debts and amounts owed to suppliers. Net current assets or working capital specifically captures the liquidity position by balancing these near-term resources and near-term obligations. The other options don’t fit because: current assets alone don’t account for what must be paid soon; net assets represents total assets minus total liabilities (the equity position), not liquidity; capital refers to long-term funding or financing, not the immediate ability to cover short-term debts.

The measure of short-term liquidity is found by looking at what the business owns that can be turned into cash in the near term minus what it owes in the near term. This difference is Net Current Assets, also called Working Capital. It shows how much liquid resources are available to fund day-to-day needs and to meet short-term obligations.

Why this is the best fit: subtracting current liabilities from current assets directly reveals the amount available to cover debts due within a year. A positive figure indicates there are enough liquid resources to pay those short-term obligations; a negative figure signals potential liquidity problems.

For context, current assets include items like cash, stock, and money owed by customers, while current liabilities include short-term debts and amounts owed to suppliers. Net current assets or working capital specifically captures the liquidity position by balancing these near-term resources and near-term obligations.

The other options don’t fit because: current assets alone don’t account for what must be paid soon; net assets represents total assets minus total liabilities (the equity position), not liquidity; capital refers to long-term funding or financing, not the immediate ability to cover short-term debts.