Current assets less current liabilities equals

Current assets less current liabilities equals

• A. working capital
• B. equity
• C. net assets
• D. current ratio

Answer: (A)

The main idea is short‑term liquidity: how much resources a business has available after it covers near‑term obligations. Subtracting current liabilities from current assets gives this measure, called working capital. It shows the cushion available to fund day‑to‑day operations and unexpected needs. Current assets are items that can be turned into cash within a year (like cash, accounts receivable, and inventory). Current liabilities are obligations due within a year (like accounts payable and short‑term debt). The difference between these two totals is working capital, a positive number signals potential to meet short‑term debts and continue operations. This isn’t equity, which reflects owners’ claims after all liabilities. It isn’t net assets, which is a broader measure (assets minus liabilities, not limited to the near term). It isn’t the current ratio, which is current assets divided by current liabilities and answers a different question about coverage level, not the net short‑term resource amount.

The main idea is short‑term liquidity: how much resources a business has available after it covers near‑term obligations. Subtracting current liabilities from current assets gives this measure, called working capital. It shows the cushion available to fund day‑to‑day operations and unexpected needs.

Current assets are items that can be turned into cash within a year (like cash, accounts receivable, and inventory). Current liabilities are obligations due within a year (like accounts payable and short‑term debt). The difference between these two totals is working capital, a positive number signals potential to meet short‑term debts and continue operations.

This isn’t equity, which reflects owners’ claims after all liabilities. It isn’t net assets, which is a broader measure (assets minus liabilities, not limited to the near term). It isn’t the current ratio, which is current assets divided by current liabilities and answers a different question about coverage level, not the net short‑term resource amount.