Question

The source of working capital is

• A. Debtors
• B. Bank overdraft
• C. Cash sales
• D. All of these

Hint:

Working capital ensures operational efficiency — manage debtors, cash, and short-term loans wisely for smooth daily functioning.

Answer 1

The Correct Option is D

Step 1: Understanding working capital.
Working capital refers to the amount of capital that a business requires to run its daily operations.
It is calculated as the difference between current assets and current liabilities.
\[ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} \] A company needs working capital to finance its short-term obligations, pay wages, purchase materials, and meet operational expenses.
Step 2: Sources of working capital.
The main sources of working capital include:
- Debtors: When a company sells goods on credit, debtors represent money to be received — a current asset, thus a source of working capital.
- Bank overdraft: This is a short-term borrowing facility provided by banks to meet immediate cash needs, which serves as a temporary source of working capital.
- Cash sales: Cash sales generate immediate inflow of funds, increasing liquidity and providing working capital.
Step 3: Importance of multiple sources.
In practice, a combination of these sources is used to maintain a steady flow of working capital and ensure business continuity.
Proper management of working capital ensures smooth operations and financial stability.
Step 4: Analysis of options.
- (1) Debtors: Correct, provides short-term capital inflow.
- (2) Bank overdraft: Correct, provides temporary financing.
- (3) Cash sales: Correct, increases liquidity instantly.
- (4) All of these: Correct — all the above are valid sources of working capital.
Step 5: Conclusion.
Hence, the source of working capital is All of these.