UGC NET COMMERCE January 2017(Paper-II) Q31
- Option : B
- Explanation : Calculation of Working Capital : Difference between current assets and current liabilities is known as ‘fund’. In other words, ‘fund’ means working capital. Before preparing fund flow statement opening and closing working capital is calculated by using the following formula:
Working Capital = Current Assets – Current Liabilities
By comparing opening and closing working capital, increase or decrease in working capital is calculated. If working capital increases, it shows applications on uses of fund. If working capital decreases it shows sources of funds. To study change in working capital, “Statement of working Capital” is prepared.
Statement of Variation or Changes in Working Capital
In fund flow statement difference between total sources and total applications is shown. This change in working capital should be unified working by preparing working capital schedule. Format of statement in change in working capital has been given below:
Rules of Preparing Statement of Changes in Working Capital
1. An increase in current assets increases working capital.
2. A decrease in current assets decreases working capital.
3. An increase in current liabilities decreases working capital.
4. An decrease in current liabilities increases working capital.
