Use the information below to answer questions below # Sales 50,000.00 Debtors 10,000.00 Cash in hand 5,000.00 Opening stock 30,000.00 Creditors 8,000.00 Pur...

This question tests the calculation of working capital, which measures a business's short-term financial health.

Working capital is found using the formula:

From the figures given, the current assets are the items a business expects to turn into cash within a year: debtors, cash in hand, and the closing stock (the stock actually on hand at the end of the period, not the opening stock, which belonged to the earlier period and has already been used up or sold). The current liabilities are the short-term debts owed: creditors and the bank overdraft.

Applying the formula:

The working capital is therefore #5,000.00. Sales, opening stock, and purchases are figures used in preparing the trading account to find gross profit; they are not part of the working capital calculation, which only uses balance-sheet items, current assets and current liabilities, at the end of the period.

When solving working capital questions, always use closing stock, never opening stock, and exclude trading account items like sales and purchases from the calculation.