Which term equals current assets minus current liabilities?

Which term equals current assets minus current liabilities?

• A. Current Ratio
• B. Assets
• C. Balance Sheet
• D. Equities

Answer: (A)

Subtracting current liabilities from current assets gives working capital, which measures a company’s ability to fund its day-to-day operations with short-term resources. It reflects the available cushion to cover short-term obligations. The current ratio, by contrast, is current assets divided by current liabilities, not their difference, so it answers a different liquidity question. The other terms don’t fit because assets is the total resources, the balance sheet is the financial statement that lists assets, liabilities, and equity, and equities refer to owners’ claims after debts. So the answer describing current assets minus current liabilities is working capital.

Subtracting current liabilities from current assets gives working capital, which measures a company’s ability to fund its day-to-day operations with short-term resources. It reflects the available cushion to cover short-term obligations. The current ratio, by contrast, is current assets divided by current liabilities, not their difference, so it answers a different liquidity question. The other terms don’t fit because assets is the total resources, the balance sheet is the financial statement that lists assets, liabilities, and equity, and equities refer to owners’ claims after debts. So the answer describing current assets minus current liabilities is working capital.