Working Capital Management
Working Capital Management is the process of managing a company's short-term assets and liabilities. It ensures that a business has enough cash to meet its daily expenses and debts. In simple words, it is the money required to run day-to-day operations. Current assets are items like cash, stock of goods, and money owed by customers that can be turned into cash within a year. Current liabilities are debts that the company must pay within one year, like payments to suppliers.
Concepts (6)
India uses a dual GST model. For sales within the same state (Intra-state), two taxes are charged: CGST for the Central Government and SGST for the State Government.
India uses a dual GST model. For sales within the same state (Intra-state), two taxes are charged: CGST for the Central Government and SGST for the State Government. For sales between two different states (Inter-state), only one tax is charged called IGST. The IGST is collected by the Center but later shared with the consuming state. Example: A sale from Mumbai to Pune has CGST+SGST. A sale from Mumbai to Delhi has IGST.
Input Tax Credit is the core of GST. It means at the time of paying tax on output (sales), you can reduce the tax you have already paid on inputs (purchases). This ensures that tax is only paid on the 'Value Addition' at each stage.
Input Tax Credit is the core of GST. It means at the time of paying tax on output (sales), you can reduce the tax you have already paid on inputs (purchases). This ensures that tax is only paid on the 'Value Addition' at each stage. For example, if a cloth merchant pays 50 rupees tax on yarn and collects 80 rupees tax on the shirt, he only pays 30 rupees to the government. This keeps the business's cash flow healthy and prevents double taxation.
Inventory includes raw materials and finished goods. The goal is to avoid a 'Stock-out', which means running out of goods to sell. However, keeping too much stock increases storage costs.
Inventory includes raw materials and finished goods. The goal is to avoid a 'Stock-out', which means running out of goods to sell. However, keeping too much stock increases storage costs. Companies use 'Economic Order Quantity' (EOQ) to decide how much to buy at once. For example, a mobile shop orders 50 units at a time to balance shipping costs and storage space.
This is about managing money owed by customers. It involves setting a credit policy. A strict policy means selling only for cash. A loose policy means giving customers many months to pay.
This is about managing money owed by customers. It involves setting a credit policy. A strict policy means selling only for cash. A loose policy means giving customers many months to pay. For example, a big wholesaler might give a 2% discount if a shopkeeper pays the bill within 5 days instead of 30 days. This speeds up cash collection.
It involves maintaining the right amount of cash for daily needs. Too much cash earns no interest and stays idle. Too little cash leads to missed payments and a bad reputation. Companies use models like the Baumol Model to find the best cash balance.
It involves maintaining the right amount of cash for daily needs. Too much cash earns no interest and stays idle. Too little cash leads to missed payments and a bad reputation. Companies use models like the Baumol Model to find the best cash balance. An example is a shopkeeper keeping small change for customers while depositing large notes in the bank daily to earn interest.
The cascading effect happens when tax is calculated on a price that already includes a previous tax. This is often called 'tax on tax'. Before GST, an item taxed at the factory was taxed again at the retail shop including the factory tax.
The cascading effect happens when tax is calculated on a price that already includes a previous tax. This is often called 'tax on tax'. Before GST, an item taxed at the factory was taxed again at the retail shop including the factory tax. GST removes this by giving credit for taxes paid earlier. This makes goods cheaper for the final consumer and makes the tax system more transparent and fair for everyone.
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Start Lesson: GST Structure (CGST, SGST, IGST)