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    Question

    How is the working capital of an entity

    computed?
    A Excess of current liabilities over current assets. Correct Answer Incorrect Answer
    B Excess of total assets over outside liabilities. Correct Answer Incorrect Answer
    C Excess of current assets over current liabilities. Correct Answer Incorrect Answer
    D Excess of Income over expenses. Correct Answer Incorrect Answer
    E Excess of Expenses over income. Correct Answer Incorrect Answer

    Solution

    The excess of current assets over current liabilities is known as working capital. Current assets are those assets that can be easily converted into cash within a year, such as cash, accounts receivable, inventory, and prepaid expenses. Current liabilities are those obligations that are due within a year, such as accounts payable, short-term loans, and accrued expenses. When a company has more current assets than current liabilities, it has positive working capital.

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