Meaning of working capital Concepts of working capital Types of working capital Components of working capital Factors affecting working

capital Significance of working capital Sources of working capital Working capital cycle Management of working capital Methods of estimating working capital

Funds needed for short-term purposes for the purchase of raw material, payment of wages and other day to day expenses. These funds are called working capital.

 Quantitative

concept Qualitative concept

The main followers of this concept are meed, mallet, field, baker, Bonneville & mill. This concept is also called gross working capital. According to this concept working capital is the total of all current assets.

This concept is mainly followed by Lincoln, Sayers, and staves. It lays emphasis on qualitative aspects. This concept is also called net working capital, according to which current liabilities are deducted from current assets.

Working capital can be classified on two basis: On the basis of concept: Gross working capital Net working capital On the basis of necessities: Permanent working capital Temporary working capital

There are two components of working capital: Current assets Current liabilities

Current assets

Current liabilities
Creditors Bills payable Bank over draft Outstanding expenses Provision for taxation Proposed dividend Unaccrued income Short term loans

Cash & bank balance Debtors Bills-receivable Inventory

Raw material Work-in-progress Closing stock of finished goods.

Short term investments Prepaid expenses Accrued income

Nature and size of businrss Length of production cycle Seasonal operations Business cycle fluctuations Market competitiveness Price level changes Credit policies Working capital cycle Growth of business

Solvency of the business Goodwill Easy loans Cash discounts Regular payment of daily commitments Regular supply of raw material Regular return on investments High morale Ability to face crisis

Sources of working capital

Short-term

Long-term

Advance from customers

Bank credit

Short term sources

Public deposits

Short term loans

Trade credit

Issue of shares

Long-term loans

Long term sources

Retained earnings

Issue of debentures

reserves

CASH
RAWMATERIAL

DEBTORS

FINISHED GOODS

WORKINPROGRESS

1.

Management of working capital is concerned with managing the problems related to current assets & current liabilities. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debts.

2.

Managerial accounting strategy which focuses on maintaining efficient levels of both current assets and current liabilities, in respect to each other.

Cash forecasting method Adjusted profit and loss method Projected balance sheet method Current assets & current liabilities method

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