Multiple Choice
Which action should a company take in order to minimize losses due to bad debts?
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7. Receivables and Investments
Types of Receivables
Struggling with Financial Accounting?
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Which of the following accounts is considered part of working capital?
A
Accounts Receivable
B
Equipment
C
Bonds Payable
D
Retained Earnings
Verified step by step guidance1
Understand the concept of working capital: Working capital is the difference between current assets and current liabilities. It represents the short-term liquidity of a company and its ability to cover short-term obligations.
Identify current assets: Current assets are assets that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer. Examples include cash, accounts receivable, inventory, and prepaid expenses.
Identify current liabilities: Current liabilities are obligations that are due within one year or the operating cycle, whichever is longer. Examples include accounts payable, short-term debt, and accrued expenses.
Analyze the given options: Accounts Receivable is a current asset and is part of working capital. Equipment is a long-term asset and not part of working capital. Bonds Payable is a long-term liability and not part of working capital. Retained Earnings is part of equity and not part of working capital.
Conclude that Accounts Receivable is the correct answer because it is a current asset and directly contributes to the calculation of working capital.
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