Today, we are looking at the word Working Capital. Working Capital equals current assets less current liabilities. Working Capital serves as a safety cushion to creditors. A couple of things to note here: 1. A higher balance is needed when the company has a problem borrowing on short notice. 2. A higher balance, or an excessive balance working capital, may be bad because funds could be invested in concurrent assets for a greater return. Working capital = cu
The word this week is uncollectible account. An uncollectible account is an account such as a receivable, notes receivable, or any other forms of a receivable that is unlikely to be paid. An example of this is when a customer who is about to bankrupt or on a verge to default. This is related to allowance for bad debts.
As a business owner, more than likely, at some point in time, you will have to write-off bad debts on your balance sheet. Most balance sheets will show a classification known as an allowance for bad debts. Allowance for bad debts is a provision that shows the possibility of a receivable being uncollected. When you view it on a balance sheet, you will see your accounts receivable classified as gross receivable, reduced by allowance for bad debts, which will then represent yo