Working capital may be tied to certain debt covenants causing cash to be considered material for audit purposes.

Question

Quizplus · Accepted Answer

Working capital is a measure of a company's liquidity and is calculated by subtracting current liabilities from current assets. If a company has debt, the lenders may impose certain debt covenants that require the company to maintain a certain level of working capital. In such cases, cash becomes material for audit purposes as it can impact the company's ability to meet its debt covenants.

Working Capital May Be Tied to Certain Debt Covenants Causing