nnのCPA試験の旅 in Hawaii CPA試験の旅 in Hawaii

Hello again!

by nn_77
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タグ:Working Capital ( 1 ) タグの人気記事

Working Capital

Kyoro-san ( to be exact, "Kyoroichi"-san), gives questions on USCPA topics everyday on his blog. It's helpful when you are to test your understanding. Topics he refers to on his blog range in scope; he knows a lot about various things with their various issue points. One of the recommemdable website.

Since he raised a question about working capital this time, I had a chance to get my understanding straight about WORKING CAPITAL.

Working Capital can be translated into either "運転資本" or "運転資金" in Japanese. But these two Japanese terms refer to different notion respectively. Each of them are closely related and important as well, but still they are different. And the notion of "運転資金" is more common to me, a man who once worked in a corporate loan section in a bank, while the notion of "運転資本" is a very basic idea in BEC subject of USCPA exam, which means a lot to me now.

I made a quick research on the internet, and find a homepage, where the difference between the two conepts are clearly stated.


Brief Summary
"運転資本 (Working Capital)" = Current Assets ― Current Liabilities
: The larger the positive gap is, the entity can add more liabilities all the more for it.
e.g.) " My company has $110 current assets and $50 current liabilities, both of which will due within a year. Even after the settlement of $50 current liabilities, $60 current assets will remain. So my company can purchase additional materials up to $60 even if the AP increases concurrently"

"運転資金(also, Working Capital)"
= Account Receivable + Inventory - Account Payable
(note that "CASH" is not taken into consideration)

1) the larger the AR is and the longer the cash gap is, the longer the company waits to collect money (= cash realization)

2) the larger the AP is and the longer the cash gap is, the longer the company is waied to pay for its bill (= liability settlement).

: The larger the positive gap is, the tighter it is for the company to meet the due of the payment.

e.g.) " My company has $110 of AR+Inventory in our normal course of business. My company has $50 AP, which means, $50 of $110 can be waited for its payment for a certain period of time, while the remainder of $60 must be settled in cash. So my company needs at leaset $60 of "運転資金," which my company must be loaned from the bank this month!

... ah, I now remembered a little how it was like when I was there...

by nn_77 | 2006-01-13 12:16 | >BEC | Comments(2)