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Meaning of Net Current Assets
In simple terms, Net Current Assets refers to the total amount of current assets excluding the total amount of current liabilities in a business. It can also be referred to as Net Working Capital.
The Net Current Assets can have a positive or a negative value, wherein the two are an indicator of the well-being of a business. In case the current assets are greater than the current liabilities, the company possesses sufficient assets to pay off its indebtedness and is operating efficiently. However, a company is said to be facing financial difficulty and is not in a position to pay off its debts, when the value of net current assets is negative.
The formula is as follows:
Difference between Net Current Assets and Current Assets
Net Current Assets refers to the difference between the total amount of current assets and the total amount of current liabilities whereas Current Assets are a subpart of Net Current Assets and refer to those assets that are expected to be utilized, depreciated or traded through the operations of a business within the same financial year.
For example, cash and cash equivalents, inventory, accounts receivable, etc are Current Assets whereas the summation of the same minus the total of current liabilities is termed as Net Current Assets which is further explained through an example given below.
Numerical Example
Calculate the Net Current Assets of ABC Ltd.
(Extract of Balance Sheet)
| PARTICULARS | AMOUNT |
| CURRENT ASSETS | |
| Cash and Cash Equivalents | 2,00,000 |
| Accounts Receivables | 40,000 |
| Stock Inventory | 15,000 |
| Marketable Securities | 35,000 |
| Prepaid Expenses | 6,000 |
| TOTAL CURRENT ASSETS | 2,96,000 |
| CURRENT LIABILITIES | |
| Accounts Payable | 15,000 |
| Accrued Expense | 2,000 |
| Unearned Revenue | 20,000 |
| Taxes Payable | 40,000 |
| Short-term Debt | 10,000 |
| Interest Payable | 6,000 |
| TOTAL CURRENT LIABILITIES | 93,000 |
Solution:
Total current assets = 2,96,000
Total current liabilities= 93,000
Net Current Assets = Total Current Assets – Total Current Liabilities
= 2,96,000- 93,000 = 2,03,000
Key Takeaways
- Net Current Assets are also known as Net Working Capital.
- Net Current Assets is the difference between the total current assets and total current liabilities.
