Mrs. Bello, a sole trader, presents the following financial balances at the end of the acc… — JAMB UTME

Mrs. Bello, a sole trader, presents the following financial balances at the end of the accounting period:

- Stock of goods: $\text{₦}120,000$
- Trade debtors: $\text{₦}50,000$
- Cash at bank: $\text{₦}30,000$
- Trade creditors: $\text{₦}60,000$
- Accrued wages: $\text{₦}15,000$

What is the net working capital of the business?

$\text{₦}125,000$ Answer
B
$\text{₦}140,000$
C
$\text{₦}200,000$
D
$\text{₦}275,000$

Answer

The net working capital of the business is

\text{₦}125,000

Working capital is calculated as Current Assets minus Current Liabilities. Summing stock (₦120,000), debtors (₦50,000), and cash (₦30,000) yields ₦200,000 in current assets. Summing creditors (₦60,000) and accrued wages (₦15,000) yields ₦75,000 in current liabilities. Subtracting ₦75,000 from ₦200,000 gives ₦125,000.

Step-by-Step Solution

Calculate Total Current Assets

\text{Total Current Assets} = \text{Stock} + \text{Debtors} + \text{Cash at bank} = \text{₦}120,000 + \text{₦}50,000 + \text{₦}30,000 = \text{₦}200,000

Current assets consist of short-term assets convertible to cash within one financial year.

Calculate Total Current Liabilities

\text{Total Current Liabilities} = \text{Creditors} + \text{Accrued wages} = \text{₦}60,000 + \text{₦}15,000 = \text{₦}75,000

Current liabilities include short-term obligations payable within the accounting year.

Apply the Working Capital Formula

\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} = \text{₦}200,000 - \text{₦}75,000 = \text{₦}125,000

Net working capital measures the operational liquidity available to run daily business activities.

Key Concept

Working Capital Formula

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