Preparation of Schedule of Changes in Working Capital

Preparation of Schedule of Changes in Working Capital

Overview: The schedule of changes in working capital tracks the net increase or decrease in a company's working capital over a specific period. It compares current assets and current liabilities from two balance sheets at different dates to identify changes and their impact on the working capital.

Key Points:

• Increase in Current Assets: Leads to an increase in working capital.
• Decrease in Current Assets: Leads to a decrease in working capital.
• Increase in Current Liabilities: Leads to a decrease in working capital.
• Decrease in Current Liabilities: Leads to an increase in working capital.

Method 1: Using Only Current Accounts

Steps:

• Identify Current Assets and Liabilities: List all current assets and current liabilities from the balance sheets of two periods.
• Calculate Changes: Determine the increase or decrease for each item.
• Compute Net Change: Calculate the net increase or decrease in working capital.

Example:

Balance Sheet Data:

Schedule of Changes in Working Capital:

Preparation of Schedule of Changes in Working Capital

Overview: The schedule of changes in working capital tracks the net increase or decrease in a company's working capital over a specific period. It compares current assets and current liabilities from two balance sheets at different dates to identify changes and their impact on the working capital.

Key Points:

• Increase in Current Assets: Leads to an increase in working capital.
• Decrease in Current Assets: Leads to a decrease in working capital.
• Increase in Current Liabilities: Leads to a decrease in working capital.
• Decrease in Current Liabilities: Leads to an increase in working capital.

Method 1: Using Only Current Accounts

Steps:

• Identify Current Assets and Liabilities: List all current assets and current liabilities from the balance sheets of two periods.
• Calculate Changes: Determine the increase or decrease for each item.
• Compute Net Change: Calculate the net increase or decrease in working capital.

Example:

Balance Sheet Data:

Schedule of Changes in Working Capital:

Method 2: Using Both Current and Non-Current Accounts

Steps:

• Identify Current and Non-Current Assets and Liabilities: Include items like fixed assets, long-term liabilities, and owner's equity.
• Calculate Changes: Determine increases or decreases for each item.
• Compute Net Change: Calculate the net increase or decrease in working capital.

Example:

Schedule of Changes in Working Capital:

Funds Flow Statement

Sources and Applications of Funds:

Notes:

• Funds from Operations: $42,000-35,000=7,000$ (based on Profit and Loss account).
• Increase in Working Capital: $82,000 - 48,000 = 34,000$.

This schedule helps to identify changes in the working capital position and provides a clear view of how funds were sourced and used within a specific period.