Lesson: Net Working Capital

This lesson delves into the concept of net working capital, which is the difference between current assets and current liabilities. The lesson discusses various scenarios related to changes in net working capital and the implications for auditors. It covers concepts such as conservative working capital policy, risk management, and the impact of financing permanent current assets with short-term debt. The lesson also advises on understanding the effect of transactions, such as issuing stock or long-term debt, on current assets and current liabilities by analyzing journal entries and their influence on financial ratios.