Page 191 - Calculating Agriculture Cover 20191124 STUDENT - A

CH 21] Calculating Agriculture 21-3

Working Capital. Business requires working capital, which are funds, cash, not
encumbered by debt. Working capital are funds used in a firm’s day-to-day business
operations. Working capital is a measure of a company's liquidity, its operational efficiency
and its short-term financial health. If a company has substantial working capital, then it
should have the potential to invest and grow. Working capital is calculated as the current
assets minus the current liabilities.

Working Capital = Current Assets — Current Liabilities

From the Dunbar Cattle Company Balance sheet, Figure 21.1, the working capital is:

Working Capital = Current Assets – Current Liabilities
= $645,000 − $ 158,200
= $486,800

If a company's current assets do not exceed its current liabilities, then it may have trouble
growing or paying back creditors, and possibly go bankrupt.

Dunbar Cattle Company
Balance Sheet
December 31, 20xx 21

ASSETS
Current Assets:
Cash $18,000
Accounts Receivable, Net 324,000
Prepaid Expenses 3,000
Inventory 300,000
Total Current Assets $ 645,000 65.2%
Working Assets:
Notes Receivable 3,600
Machinery 85,000
Equipment 35,000
Less: Accumulated Depreciation − 6,600
Total Working Assets 117,000 11.8%

Fixed Assets:
Plant & Real Estate 240,000
Less: Accumulated Depreciation − 12,600
Total Fixed Assets 227,400 23.0%
Total Assets $989,400 100.0%

LIABILITIES
Current Liabilities:
Accounts Payable $129,600
Accrued Interest Payable 28,600
Total Current Liabilities $ 158,200 16.0%
Working Liabilities
Notes Payable 270,000
Total Working Liabilities 270,000 27.3%
Fixed Liabilities:
Mortgage Payable 300,000 30.3%
Total Liabilities $ 728,200 73.6%

EQUITY
John Dunbar, Proprietorship 261,200 26.4%
Total Liabilities and Proprietorship $989,400 100.0%

Figure 21.1 Balance Sheet for Dunbar Cattle Company

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