Financial accounting and working capital management

Abstract

The importance of timely, accurate and factual display of data in financial accounting forms the basis for a better calculation of the amount of working capital, which is an important indicator for managers. The amount of working capital must be constantly monitored in order to prevent the enterprise from unnecessarily tying up funds that it can use for other purposes. Working capital is funds that need to be permanently maintained in order for an enterprise to be able to provide its production and supply cycle. Current assets include all assets that an enterprise expects to convert into cash during the year. Current assets thus mean short-term assets that can be in inventories or in the form of cash (cash and bank accounts, receivables, securities). Working capital management includes securing the enterprise's short-term resources to sustain ongoing activities, accumulation of funds and optimize liquidity. The time value of money and the time itself is crucial in managing working capital, because the delay of each day has its value. Effective working capital management requires striking a balance between liquidity and profitability in order to maximise the value of the business. Finding its optimal level may not be an easy task for managers.