Q.From the following information, calculate the gross working capital and the net working capital of a firm.
Current assets: Stock ₹40,000; Debtors ₹30,000; Cash ₹10,000; Bills Receivable ₹5,000; Prepaid expenses ₹2,000.
Current liabilities: Creditors ₹25,000; Bills Payable ₹8,000; Outstanding expenses ₹4,000; Bank overdraft ₹10,000.

Gross working capital is the total of all current assets, and net working capital is that total minus the total of current liabilities.

All five current assets total ₹87,000 (the gross working capital) and all four current liabilities total ₹47,000, so the net working capital is the ₹40,000 difference — a positive, healthy figure.

Step 1 — Total the current assets (gross working capital).

Step 2 — Total the current liabilities.

Step 3 — Compute net working capital.

Net Working Capital = Total Current Assets − Total Current Liabilities

Net Working Capital = ₹87,000 − ₹47,000 = ₹40,000

Verification (dual-check). Re-adding the current assets: 40,000 + 30,000 + 10,000 + 5,000 + 2,000 = 87,000. Re-adding the current liabilities: 25,000 + 8,000 + 4,000 + 10,000 = 47,000. Difference: 87,000 − 47,000 = 40,000. Both totals check, and the net working capital is confirmed as ₹40,000. Since current assets exceed current liabilities, the net working capital is positive, indicating the firm can comfortably meet its short-term obligations.

Alternatively, one may compute net working capital directly by pairing off assets against liabilities, but the standard and least error-prone method is to total all current assets and all current liabilities separately and take the difference, as shown above.

A frequent error is including a fixed asset or a long-term liability (such as a term loan or share capital) in the totals — only genuinely current items belong here. Bank overdraft is a current liability, not a deduction from cash, and prepaid expenses are a current asset; misclassifying either changes the answer.