Turn on the news and you’ll see companies everywhere trying to shore up their balance sheets in anticipation of weak sales and reduced access to credit. Adequate working capital is crucial in these tough times to stay in business.
My predecessor, Ren Garcia, has given us a nice portrayal of a business wimp as one without enough working capital. And Randy Meyers at CFO Magazine has warned that the temptation to extend payments is a sign of working capital trouble.
Here’s how to keep an eye on yours!
Working Capital and Related Ratios
Working capital is defined as the amount …read more

Credit Cards, so that they do not become a heavy burden (you can end up paying as much as 30% on interest & penalties), have to be managed just like any regular bank loan.
It is important to keep a proper mindset. Do not think of your credit cards as additional cash in your wallet. Thinking of your credit cards as available cash, you tend to purchase items that you want –rather than those which you really need. Or, if the purchases were for items you really needed, if you didn’t have the available cash in your …read more

When Purchases of goods / products for sale are undertaken on credit, the effect is an increase in Accounts / Trade Payable (a Liabilities Account).

In the Cash Flow Statement, these Purchases on credit are reflected in the Operating Activities Account as an increase.
Naturally, when the Purchases on credit are paid for, there is a corresponding decrease in Cash (an Asset Account) and the same decrease in Accounts / Trade Payable –which transactions are also reflected in the Operating Activities Account of the Cash Flow Statement.