Which of the following is NOT an element of working capital?Group of answer choicesRetained earningsAccounts receivableCashInterest payable
Question
Which of the following is NOT an element of working capital?Group of answer choicesRetained earningsAccounts receivableCashInterest payable
Solution
The element that is NOT part of working capital from the given options is Retained earnings.
Working capital is a measure of a company's operational liquidity and its ability to meet short-term obligations. It is calculated as current assets minus current liabilities.
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Accounts receivable: This is considered a current asset as it represents money owed to the company that is expected to be received within one year.
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Cash: This is also a current asset and is the most liquid asset a company has.
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Interest payable: This is a current liability as it represents interest expense that has been incurred but not yet paid.
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Retained earnings: This is NOT a part of working capital. Retained earnings are part of shareholders' equity and represent the cumulative net income of the company that is retained (i.e., not paid out as dividends) to be reinvested in the business or to pay debt.
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