Question

Assertion (A): The focus of calculation of working capital revolves around managing the operating cycle of the business.

Reason (R): It is because the concept of operating cycle is required to ascertain the liquidity of assets and urgency of payments to liabilities.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is a correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true

Answer 1

Both (A) and (R) are true and (R) is a correct explanation of (A).

Explanation:

Working capital management focuses on the operational cycle, which influences how long funds are held in inventory, receivables, and payments. The operating cycle is useful in determining asset liquidity and liability timeliness. As a result, both Assertion and Reason are true, and Reason accurately explains Assertion.