The difference between a firm's current assets and its current liabilities is called:

Question

BlackTom AI · Accepted Answer

Net working capital equals current assets minus current liabilities, so the correct answer is net working capital.

1. Relevant concepts
- Current assets: cash, marketable securities, accounts receivable, inventory—assets expected to convert to cash within one year.
- Current liabilities: accounts payable, short-term debt, accrued expenses—obligations due within one year.
- Net working capital (NWC): the measure of short-term liquidity defined as current assets minus current liabilities. It indicates the firm’s ability to meet short-term obligations.

2. Step-by-step reasoning
- Start with the defining relationship: NWC = Current Assets − Current Liabilities.
- If current assets exceed current liabilities, NWC is positive (the firm can cover short-term obligations). If current liabilities exceed current assets, NWC is negative (potential liquidity strain).

3. Example calculation (intermediate steps)
- Suppose current assets = $75,000 and current liabilities = $45,000.
- Compute NWC: $75,000 − $45,000 = $30,000.
- Interpretation: The firm has $30,000 of excess short-term resources after meeting current obligations.

4. Why the correct answer is correct
- The phrase “the difference between a firm’s current assets and its current liabilities” is the textbook definition of net working capital. The formula and interpretation above confirm this match exactly.

5. Why the other options are incorrect
- Net worth: Equals total assets minus total liabilities (owners’ equity), not just current items; it’s a balance-sheet equity measure rather than a short-term liquidity measure.
- Net earnings: Refers to profit after expenses and taxes over a period (income statement concept), not a balance between current assets and liabilities.
- Net current assets: Although some texts use “net current assets” synonymously with net working capital, the standard and most precise term used in this context is net working capital; the intended choice in this set is net working capital.

6. Conclusion
The correct answer is net working capital, which matches the provided answer.

The difference between a firm's current assets and its current liabilities is called:单项选择题

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