Given the following balance sheet for XYZ Company:\[\begin{array}{ll}\text{Cash} & \$10,000 \\\text{Accounts Receivable} & \$15,000 \\\text{Inventory} & \$25,000 \\\text{Accounts Payable} & \$12,000 \\\text{Short-term Notes Payable} & \$8,000 \\\end{array}\]What is the net working capital for the company?

• A. \$20,000
• B. \$30,000
• C. \$10,000
• D. \$40,000

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of Net Working Capital (NWC). Net Working Capital is calculated as Current Assets minus Current Liabilities. It measures a company's short-term liquidity and operational efficiency.
2. Step 2: Identify the Current Assets from the balance sheet. Current Assets typically include Cash, Accounts Receivable, and Inventory. Add these values together: Cash ( $\mathrm{10,000}$), Accounts Receivable ( $\mathrm{15,000}$), and Inventory ( $\mathrm{25,000}$).
3. Step 3: Identify the Current Liabilities from the balance sheet. Current Liabilities typically include Accounts Payable and Short-term Notes Payable. Add these values together: Accounts Payable ( $\mathrm{12,000}$) and Short-term Notes Payable ( $\mathrm{8,000}$).
4. Step 4: Subtract the total Current Liabilities from the total Current Assets to calculate Net Working Capital. Use the formula: $\mathrm{NWC}=\mathrm{Current}\mathrm{Assets}-\mathrm{Current}\mathrm{Liabilities}$.
5. Step 5: Interpret the result. A positive Net Working Capital indicates that the company has more short-term assets than liabilities, which is generally a sign of good liquidity and financial health.