1. Requirement of working capital increase due to the following?

Let’s begin by defining the **key term:**

**Working capital**

This term refers to the funds accessible to pay your immediate financial responsibilities.

To answer the problem, the list shows the following factors why the firm requires more working
capital:

- Business nature and size - working capital requirement is dependent upon the structure of the
business. The bigger the business prospect, the larger the working capital requirement is to be
established.

- Firm’s business cycle situation - working capital requirement is directly dependent upon whether the
company is under the cycles with greater volumes of production or periods with an idle or common
production volume. If the business cycle is within those periods where demand is high, working capital
must increase to accommodate the need.

- Market conditions - greater competition requires larger inventory to ensure more profit; thus, a large
sum of working capital is needed.

As can be seen, the following list is some of the factors that lead to an increase in working capital. Any
items with a corresponding influence that directly impacts the amount that should be invested in the
firm’s current assets and liabilities may also be included to answer the problem.

2. An increase in what may reduce the working capital?

**Bad debts** are the main reason why there is a decrease in working capital. Moreover, since
the working capital is the result of subtracting both the firm’s current assets and liabilities, the
more liabilities there are, the less working capital there will be.

3. What are the aspects of working capital management?

Let’s begin by defining the **key terms:**

**Working capital**

This term refers to the funds accessible to pay your immediate financial responsibilities.

**Working capital management**

This term refers to a strategy made for businesses to guarantee the efficient operations of the
said company through meticulous monitoring and analysis.
To answer the question, **all facets of a firm’s current assets and liabilities are involved in
working capital management. **

Therefore, any types of management methods relating to such will be included as well. For
instance, cash management, inventory management, receivable management, and/or accounts
payable management are all involved in the said terminology.

4. From the following, what are the uses of ratio analysis?

Let’s begin by defining the **key term:**

**Ratio analysis**

This term refers to a quantitative tool that measures and analyzes a firm’s financial position and
trends.

To answer the question, the following list shows the characteristics of ratio analysis:

- Ratio analysis is used to compare the financial statement of the company

- Its purpose is to unveil the company’s line-item details that describe its **liquidity,
profitability, solvency, and operational efficiency** to a company, sector, or industry in the
same business field.

- Ratio analysis is also used to understand certain risks that a business has, thus, its well-being
in financial aspects.

- It is most helpful in terms of communicating and coordinating the company’s financial

leverage compared to other businesses

- Ratio analysis is better used to provide a more in-depth financial forecast and financial
planning

As can be seen, these are some of the ratio analysis’ main uses. Any items with the same idea
may also be included to answer the problem.

5. What do you mean by working capital management?

Let’s begin by defining the **key term:**

**Working capital**

This term refers to the funds accessible to pay your immediate financial responsibilities.
To answer the problem, working capital management is a term that refers to a **strategy made
for businesses to guarantee the efficient operations of the said company through meticulous
monitoring and analysis.**

The technique is utilized to optimize the best use for the firm’s current assets and liabilities in
order to maintain good cash flow and meet short-term requirements.

6. Discount allowed appearing in the trial balance are shown?

Let’s begin by defining the **key term:**

**Discount allowed**

This term refers to a loss or an expense from the company as it settles the debtors’ accounts at
a discounted amount.

**Trial Balance**

This term refers to a worksheet that states all the debit and credit accounts made by a company
to record all its transactions.

Based on the definitions, the discount allowed is accounted for on the profit and loss account
under the debit side of the statement. Since the discount allowed is supposed to be an income
that was sacrificed by the company, it becomes a reduction in the revenue which is why it is

7. Working capital forecasting is based on the overall?

Let’s begin by defining the **key term:**

**Working capital**

This term refers to the funds accessible to pay your immediate financial responsibilities.

To answer the question, the basis of working capital forecasting is the company’s **financial
policies and requirements.** Since the main intent of forecasting is to determine the firm’s
financial position in order to gain control over its liquidity, and capability of meeting the
company’s necessities.

8. Select the appropriate benefit of adequate working capital.

Let’s begin by defining the **key term:**

**Working capital**
This term refers to the funds accessible to pay your immediate financial responsibilities.

To answer the question the following list shows the advantages of having adequate working
capital:

- The business will be able to meet its daily operational requirements and commitments under
normal circumstances

- The business will be able to provide for a regular wage or salary payments

- The business will be able to maintain its employee morale

- The business will increase its efficiency, and productivity, and will reduce costs due to
employee satisfaction

- The business will maintain normal spending and thus will reduce wastage

As can be seen, these are some benefits of having adequate working capital. Any items with the
same idea may also be included to answer the problem.

9. Which of the following is not true about ratio analysis

**C. Ratio Analysis is not helpful in identifying weak spots of the business**

To explain the reason behind choosing the option, we will first define the **key term:**

**Ratio analysis**

This term refers to a quantitative tool that measures and analyzes a company’s financial
position and trends.

Furthermore, to answer the question, the following list shows the characteristics of ratio
analysis:

- Ratio analysis is used to compare the financial statement of the company

- Its purpose is to unveil the company’s line-item details that describe its **liquidity,
profitability, solvency, and operational efficiency** to a company, sector, or industry in the
same business field.
- Ratio analysis is also used to understand certain risks that a business has, thus, its well-being
in financial aspects.

- It is most helpful in terms of communicating and coordinating the company’s financial

leverage compared to other businesses

- Ratio analysis is better used to provide a more in-depth financial forecast and financial
planning

As can be seen, these are some of the identifiers of ratio analysis which are all described in
other options. Meaning to say, based on letters A to D, the most possible answer to the
question is the letter C.

10. One of the important objectives of working capital management is?

Let’s begin by defining the **key terms:**

**Working capital**

This term refers to the funds accessible to pay your immediate financial responsibilities.

**Working capital management**

This term refers to a strategy made for businesses to guarantee the efficient operations of the
said company through meticulous monitoring and analysis.

To answer the problem, the most significant objective of working capital management **to
guarantee the efficient operations of a company through meticulous monitoring and analysis.**
The technique is utilized to optimize the best use for the firm’s current assets and liabilities in
order to maintain good cash flow and meet short-term requirements.

11. Which of the following is the determinant of working capital: depreciation policy,
taxes payable by firm, production policy, all the above?

Let’s begin by defining the **key term:**

**Working capital**

This term refers to the funds accessible to pay your immediate financial responsibilities.

To answer the problem, the list shows the following determinants present in a firm’s working
capital:
- Depreciation Policy - Because the value of assets changes due to depreciation, policies
regarding such affects the company’s working capital.

- ProductionPolicy - working capital requirement is directly dependent upon whether the

company is under the cycles with greater volumes of production or periods with an idle or
common production volume.

- Tax provisions and rates - working capital requirement is dependent upon tax requirements.

As can be seen, these are the reasons why **all of the above** will be chosen among the
options since all that are mentioned are a part of the working capital’s determinants.

12. Enumerate the factors affecting working capital requirements.

Let’s begin by defining the **key term:**

**Working capital**

This term refers to the funds accessible to pay your immediate financial responsibilities.

To answer the question, here are some of the factors that affect the working capital:

- Business’ nature - this factor influences decisions regarding working capital

- Business size - this factor influences whether a large sum of money is needed to be invested in
the working capital.

- Business’ product policy - similar to business size, this factor influences whether a large sum of
money is needed to be invested in the working capital.

- Business’ credit policy - this factor influences the working capital’s credit policy.

- Business growth and expansion capabilities - this factor influences how the business utilizes,
operates, and releases funds for working capital optimization.

As can be seen, these are some factors that are true about working capital. Any option or
description that is opposed to this will be used to answer the question directly. Any items with
a corresponding influence that directly impacts the amount that should be invested in the
business's current assets and liabilities may also be included to answer the problem.

13. Explain the dangers of excess and inadequate working capital?

Let’s begin by defining the **key term:**

**Working Capital**

This term refers to the computed difference that shows the distinction between the current
assets and liabilities.

To answer the question, here are some disadvantages of a company with too much working
capital:

- Rate of return will be reduced since too much capital doesn’t bring profit to the business.

- Excessive working capital will result in a low return on investment and affect the company’s
value of shares.

- Businesses may tend to increase their purchase of inventories but this may lead to wastage,
losses, mishandling, or even theft.

- Too much working capital establishes a bigger idle fund

- Having too much working capital lures executives from spending more than regular.

On the other hand, these are some of the cons of having too little working capital:

- Having not enough working capital will prevent the business from paying its short-term
liabilities

- Having not enough working capital will prevent the business from buying in bulks and getting
more discounts from buying in large amounts

- Having not enough working capital will prevent the business from risking and exploring the
industry’s market conditions that will be utilized for undertaking profitable projects

- Having not enough working capital will create inefficiencies as more and more necessities will
be hard to reach

14. What is working capital in financial management?

Let’s begin by defining the **key term:**

**Working Capital**

This term refers to the computed difference that shows the distinction between the current
assets and liabilities.
Based on the definition, working capital is the value derived from the firm’s available funds that
will be used for its potential and current obligations. Any cost that will be incurred within the
firm’s current operating cycle is aimed to be shouldered by the company’s working capital.

15. What do you mean by gross working capital?

Gross working capital (GWC) refers to the number of an organization's assets currently in the
accounting period. GWC is not a good predictor of an organization's liquidity since it only
considers short-term company assets turned into cash in a year.

To better understand, provided below is GWC’s formula:

$$\text{GWC = Company’s Total Current Assets}$$

16. What does the ratio trend analysis study for forecasting?

Ratio trend analysis is an approach that studies historical ratios for the purpose of forecasting
potential ratios from them. It is a method that compares various related figures to understand
their financial effect and measure the organization’s performance.

17. Bank overdraft is debit or credit in trial balance?

Let’s begin by defining the **key term:**

**Bank overdraft**

This term refers to an offer of a loan that is given by the bank to cover an entity’s transactions
when the latter’s account balance drops to zero.

To answer the question, since bank draft is normally the firm’s liability to the bank, it is
recorded on the credit side of the worksheet.

18. The trial balance contains the balance of all accounts.

**True.**

Technically, the trial balance provides us the listing of all the firm’s transactions and it contains
a debit and credit side to track the inflow and outflow of the company’s financial operations. In
addition, it displays all ledger accounts' debit and credit balances as of a specific date. A company
prepares the trial balance to verify the accounts' arithmetical accuracy.

19. There is no difference between cash discount and trade discount.

**False.**
To answer the question, a comparison of trade discounts against cash discounts is provided
below.

**Source**

- Following the discount policy, the seller offers a trade discount to the customer when the
latter purchases products.

- The vendor provides a cash discount to the purchaser when he makes a purchase.
Consequently, this decision is made on the run, not in advance.

**Aim**

- The purpose of a trade discount is to encourage recurring business by incentivizing customers

to buy in bulk.

- The cash discount is a negotiation strategy that encourages the buyer to pay in advance.

**Significance**

- The supplier offers a trade discount as a product's market price reduction.

- The seller offers a cash discount in addition to the invoiced price for an immediate transaction;

**Accounting**
- There is no record of a trade discount because the amount owed is determined after taking
the discount from the receipt.

- The debit side of the cash book is where the cash discount is entered.

As can be seen, there are plenty of factors that distinguish cash discounts to trade discounts.

20. Trade discount is given on credit transactions only?

Let’s begin by defining the **key term:**

**Trade discount**

This term refers to a seller's discount offered to the client to lower the acquired item's price.

To answer the question, since the main purpose of such a discount is to encourage purchases in bulk,
cash and credit transactions are both offered in trade discounts. So as long as the client or customer will
buy, regardless of their mode of payment, trade discounts can be availed.