STATEMENT OF CHANGES IN WORKING CAPITAL
The statement of changes in working capital denotes the movement of working capital. The variation or change in working capital is shown by a format of working capital.
As working capital represents the excess of current assets over current liabilities the format of working capital shows the aggregate of current assets, current liabilities at the end of two years and then the increase or decrease in working capital is measured by comparing the net working capital. Its proforma is as follows:
A transactions will cause net flow of working capital only when one of the accounts arrested is a current account (current asset or current liability) and another account is a non-current account (non-current assets or iron-current liability).
The concept of working-capital flow may be summarized as follows:
1. The net working-capital increases or decreases when a transaction involves a current account and a non-current account.
2. The net working-capital remains unaffected when a transaction involves only non-current accounts.
The concept of the flow of working capital is further illustrated in Fig. 4.2. The matrix in the figure illustrates very clearly that the amount of working-capital will be affected only with a combination of current account and non-current account.
There will be no impact on the amount on the amount of working if the combinations of accounts affected are only current or only non- current.