If current assets are 600,000 and current liabilities are 350,000, what is operating capital?

If current assets are 600,000 and current liabilities are 350,000, what is operating capital?

• A. 950,000
• B. 250,000
• C. 350,000
• D. 600,000

Answer: (B)

Operating capital, or working capital, is the net amount available to fund day-to-day operations. It’s calculated as current assets minus current liabilities. Here, 600,000 in current assets minus 350,000 in current liabilities leaves 250,000. That 250,000 represents the funds available to operate on a short-term basis. Adding the two figures would not reflect available operating funds, and taking only assets or only liabilities doesn’t account for the obligation side that must be covered.

Operating capital, or working capital, is the net amount available to fund day-to-day operations. It’s calculated as current assets minus current liabilities. Here, 600,000 in current assets minus 350,000 in current liabilities leaves 250,000. That 250,000 represents the funds available to operate on a short-term basis. Adding the two figures would not reflect available operating funds, and taking only assets or only liabilities doesn’t account for the obligation side that must be covered.