What is the difference between current assets and current liabilities?

What is the difference between current assets and current liabilities?

• A. Securities
• B. Working Capital
• C. Current Assets or Short-Term Assets
• D. Bank Debt

Answer: (B)

Difference between what a company owns that it can turn into cash within a year and what it owes within a year is called working capital. Current assets include cash, accounts receivable, and inventory—resources expected to be converted to cash within a year. Current liabilities are obligations due within a year, such as accounts payable and short-term debt. Net working capital is current assets minus current liabilities, and it measures short-term liquidity and the ability to cover upcoming obligations. A positive result means the company has more short-term resources than obligations, while a negative result signals potential liquidity issues. Securities are just investments and don’t describe the relationship between assets and liabilities. Current Assets or Short-Term Assets refers to only one side of the balance sheet, not the difference. Bank debt is a liability, not the difference between assets and liabilities.

Difference between what a company owns that it can turn into cash within a year and what it owes within a year is called working capital. Current assets include cash, accounts receivable, and inventory—resources expected to be converted to cash within a year. Current liabilities are obligations due within a year, such as accounts payable and short-term debt. Net working capital is current assets minus current liabilities, and it measures short-term liquidity and the ability to cover upcoming obligations. A positive result means the company has more short-term resources than obligations, while a negative result signals potential liquidity issues.

Securities are just investments and don’t describe the relationship between assets and liabilities. Current Assets or Short-Term Assets refers to only one side of the balance sheet, not the difference. Bank debt is a liability, not the difference between assets and liabilities.