A company has $50,000 in equipment, $20,000 in cash, and $30,000 in accounts payable. How much working capital does it have?

To determine the working capital of a company, you calculate it using the formula:

Working Capital = Current Assets - Current Liabilities.

In this case, the current assets include cash and equipment. However, working capital calculations typically focus only on assets that are expected to be converted to cash within a year, such as cash and accounts receivable. It is possible to consider equipment as a current asset if it is expected to be used or sold within the short term; otherwise, it is classified as a long-term asset and is excluded from current assets.

Here, we have:

• Cash: $20,000 (a current asset)

• Equipment: $50,000 (usually classified as a long-term asset, hence not included in current assets)

• Accounts Payable: $30,000 (a current liability)

Now calculating working capital:

Current assets (cash) = $20,000

Current liabilities (accounts payable) = $30,000

So,

Working Capital = $20,000 - $30,000 = -$10,000.

This negative result indicates that the company does not have enough current assets to cover its current liabilities, which is why working capital equates to a negative figure of ($10,000).

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