Question 23

Working capital is the difference between current assets and current liabilities.

Working capital is defined as the difference between current assets and current liabilities, which reflects a company's operational liquidity. It is a key measure of a company's short-term financial health and efficiency.

A) assets and current liabilities.

This option is correct as it accurately describes the definition of working capital. Working capital is calculated by subtracting current liabilities from current assets, indicating the funds available for day-to-day operations.

B) assets and retainage.

This option is incorrect because retainage refers to a portion of payment withheld until a project is completed, which is not relevant to the calculation of working capital. Retainage does not fit into the context of current assets and liabilities.

C) accounts payable and accounts receivables.

This option is incorrect as it focuses on specific components of a company's financial obligations and income rather than providing a comprehensive view of working capital. Working capital involves the total of current assets and current liabilities, not just accounts payable and receivable.

D) assets and accounts payables.

This option is also incorrect because it does not include current liabilities as a whole. While accounts payables are part of current liabilities, they do not encompass all obligations that need to be paid in the short term, thus failing to represent the full definition of working capital.

Conclusion

Option A clearly defines working capital as the difference between current assets and current liabilities, making it the only accurate choice. The other options either misinterpret the components involved or exclude critical elements necessary for understanding working capital. Therefore, A is the definitive correct answer.