Finance Glossary
Accounts Aging
A report that categorizes a company's accounts receivable according to the length of time an invoice has been outstanding.
Example
A dental practice runs an accounts aging report to see how long patients' invoices have been unpaid. The report shows $5,000 in the 0-30 days category, $2,000 in the 31-60 days category, and $1,000 in the 61-90 days category. This helps the practice manage collections and follow up on overdue accounts.
Accrued Expenses
Expenses that have been incurred but not yet paid.
Example
A dental practice incurs a $3,000 expense for dental supplies in December but doesn't pay the supplier until January. The $3,000 is recorded as an accrued expense in December to match the expense with the period it was incurred.
Allowance for Doubtful Accounts
An estimate of the amount of accounts receivable that may not be collected.
Example
A dental practice estimates that 5% of its $100,000 accounts receivable may be uncollectible. It records an allowance for doubtful accounts of $5,000 to reflect this potential loss.
Annual Report
A comprehensive report on a company's activities and financial performance throughout the preceding year.
Example
A dental corporation publishes an annual report for its shareholders, detailing its financial performance, key milestones, and future plans. The report includes financial statements, a letter from the CEO, and an overview of the dental market.
Annuity
A financial product that provides a series of payments made at equal intervals.
Example
A retired dentist purchases an annuity that pays $1,000 monthly for 20 years. This provides a steady income stream during retirement.
Audit
An official inspection of an organization's accounts, typically by an independent body.
Example
A dental practice undergoes an audit by an external accounting firm to ensure its financial statements are accurate and comply with regulations. The audit report provides assurance to stakeholders about the practice's financial health.
Bank Reconciliation
The process of comparing and matching figures from accounting records against those shown on a bank statement.
Example
A dental practice reconciles its bank statement with its internal cash records, identifying any discrepancies such as outstanding checks or deposits in transit. This ensures the accuracy of the cash balance.
Bond
A fixed income instrument that represents a loan made by an investor to a borrower.
Example
A dental practice issues $100,000 in bonds to raise funds for expansion. Investors buy the bonds and receive periodic interest payments, with the principal repaid at maturity.
Capital Gain
The profit from the sale of a capital asset.
Example
A dental practice sells an old office building for $200,000, which was originally purchased for $150,000. The $50,000 profit is a capital gain.
Cash Basis Accounting
An accounting method where revenues and expenses are recorded when they are received and paid, respectively.
Example
A dental practice using cash basis accounting records patient payments when they are received and supplier payments when they are made, providing a straightforward view of cash flow.
Consolidated Financial Statements
Financial statements that show the financial position and results of operations for a parent company and its subsidiaries.
Example
A dental corporation with multiple practice locations prepares consolidated financial statements to present the combined financial results of all its locations, providing a comprehensive view of the entire organization.
Contra Account
An account used to reduce the value of a related account.
Example
A dental practice has a contra account called 'Allowance for Doubtful Accounts' that reduces the accounts receivable balance to reflect the estimated uncollectible amounts.
Cost Accounting
The process of tracking, recording, and analyzing costs associated with the products or activities of an organization.
Example
A dental practice uses cost accounting to determine the cost of providing different dental procedures, helping to set pricing strategies and manage profitability.
Credit Agreement
A legal contract in which a lender arranges to provide a borrower with a loan or line of credit.
Example
A dental practice signs a credit agreement with a bank for a $50,000 line of credit to cover unexpected expenses and manage cash flow.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations.
Example
A dental practice has current assets of $100,000 and current liabilities of $50,000. The current ratio is 2.0 ($100,000 / $50,000), indicating it can cover its short-term liabilities twice over.
Deferred Revenue
Money received by a business for goods or services not yet delivered or performed.
Example
A dental practice sells a $1,200 annual membership plan and receives full payment upfront. The revenue is recognized over 12 months, with $100 recorded as revenue each month and the remaining as deferred revenue.
Deficit
The amount by which expenses or liabilities exceed income or assets.
Example
A dental practice incurs $600,000 in expenses while earning $550,000 in revenue, resulting in a $50,000 deficit for the year.
Depletion
The allocation of the cost of natural resources over time.
Example
A dental practice acquires a small piece of land with a limited supply of clay used for a specific dental material. The practice allocates the cost of the clay over its useful life as it is extracted and used.
Discount Rate
The interest rate used to discount future cash flows to their present value.
Example
A dental practice evaluates a potential investment in new equipment by calculating the present value of expected cash flows using a discount rate of 5%, helping to assess the investment's profitability.
Distributions
Payments made by a corporation to its shareholders, typically in the form of dividends.
Example
A dental practice, structured as an S-corporation, distributes $10,000 of its profits to its shareholders at the end of the year. These distributions represent the shareholders' share of the practice's earnings.
Double-Entry Bookkeeping
An accounting system where every transaction affects at least two accounts, with debits equaling credits.
Example
A dental practice receives a $1,000 payment from a patient. The transaction is recorded as a debit to cash and a credit to accounts receivable, maintaining the balance in the accounting system.
Due Diligence
The investigation or audit of a potential investment or product to confirm all facts.
Example
A dental practice owner conducts due diligence before acquiring another practice, reviewing financial statements, patient records, and legal documents to ensure the investment is sound.
Earned Income
Income derived from active participation in a trade or business, including wages, salary, tips, and commissions.
Example
The income a dentist earns from performing dental procedures and seeing patients is considered earned income.
Escrow
A financial arrangement where a third party holds funds or assets until specific conditions are met.
Example
When a dental practice sells its office building, the buyer deposits the purchase funds into an escrow account. The funds are held until all conditions of the sale are met, ensuring a secure transaction.
Estate Tax
A tax on the transfer of the estate of a deceased person.
Example
If a dentist passes away and leaves an estate valued at $2 million, the estate may be subject to estate taxes based on the applicable tax laws and thresholds.
Expenditure
An outflow of money to pay for goods, services, or other expenses.
Example
A dental practice's expenditure on new dental chairs and equipment amounts to $30,000. This is recorded as a capital expenditure, reflecting the investment in long-term assets.
External Audit
An independent examination of financial statements conducted by an external auditor.
Example
A dental practice undergoes an external audit to verify the accuracy of its financial statements and ensure compliance with accounting standards and regulations. The audit provides credibility to the practice's financial reporting.
Fair Market Value
The price that a willing buyer and a willing seller agree upon when neither is under any compulsion to buy or sell.
Example
A dental practice assesses the fair market value of its office building before selling it. Based on comparable property sales and market conditions, the fair market value is determined to be $500,000.
Fiduciary Duty
A legal obligation to act in the best interest of another party.
Example
A dental practice's accountant has a fiduciary duty to manage the practice's finances responsibly and make decisions that are in the best interest of the practice and its owners.
Fiscal Year
A one-year period that companies and governments use for financial reporting and budgeting.
Example
A dental practice's fiscal year runs from January 1 to December 31. Financial statements and reports are prepared based on this period to provide a consistent view of the practice's financial performance.
Fixed Cost
A cost that does not change with an increase or decrease in the amount of goods or services produced.
Example
The rent for a dental practice's office space is a fixed cost. Regardless of the number of patients seen or procedures performed, the monthly rent remains the same.
Forensic Accounting
The use of accounting skills to investigate fraud or embezzlement and to analyze financial information for use in legal proceedings.
Example
A dental practice suspects financial irregularities and hires a forensic accountant to investigate. The forensic accountant examines financial records to identify any fraudulent activities and gather evidence for potential legal action.
GAAP (Generally Accepted Accounting Principles)
A common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.
Example
A dental practice prepares its financial statements in accordance with GAAP to ensure consistency, reliability, and comparability with other practices and businesses.
Goodwill
An intangible asset that arises when one company acquires another for a premium value.
Example
A dental practice acquires another practice for $1 million, even though the fair value of the acquired practice's net assets is $800,000. The $200,000 premium paid is recorded as goodwill, representing the value of the acquired practice's reputation and patient base.
Gross Margin
The difference between revenue and the cost of goods sold (COGS), expressed as a percentage of revenue.
Example
A dental practice generates $200,000 in revenue from dental procedures and incurs $50,000 in costs for dental supplies and lab fees. The gross margin is 75% (($200,000 - $50,000) / $200,000), indicating the practice retains 75% of its revenue after covering direct costs.
Income Tax
A tax imposed by the government on the income earned by individuals and businesses.
Example
A dental practice calculates its taxable income for the year as $100,000. With a corporate tax rate of 21%, the practice owes $21,000 in income tax to the government.
Insolvency
The state of being unable to pay debts when they are due.
Example
A dental practice struggles with declining patient visits and mounting debts, leading to insolvency. The practice is unable to meet its financial obligations and seeks restructuring or bankruptcy protection.
Interest Rate
The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal.
Example
A dental practice takes out a $50,000 loan with an interest rate of 6%. The practice pays $3,000 in interest annually for the privilege of borrowing the money.
Internal Audit
An examination of a company's financial and operational activities conducted by its own employees.
Example
A dental practice conducts an internal audit to review its financial records, assess compliance with internal policies, and identify areas for improvement. The internal audit helps ensure the practice operates efficiently and effectively.
Investment
The action or process of investing money for profit.
Example
A dental practice invests $20,000 in a new marketing campaign to attract more patients. The goal is to generate additional revenue and grow the practice's patient base.
Ledger
A book or other collection of financial accounts.
Example
A dental practice maintains a general ledger that records all financial transactions, including patient payments, supplier invoices, payroll, and utility bills. The ledger provides a comprehensive view of the practice's financial activities.
Leverage
The use of borrowed capital to increase the potential return of an investment.
Example
A dental practice uses a $100,000 loan to purchase new equipment, aiming to increase its capacity and generate higher revenue. The practice leverages the borrowed funds to expand its operations and improve profitability.
Line of Credit
An arrangement between a financial institution and a customer that establishes a maximum loan balance that the lender permits the borrower to access or maintain.
Example
A dental practice secures a $50,000 line of credit from a bank to cover short-term expenses and manage cash flow. The practice can draw on the line of credit as needed and repay the borrowed amount over time.
Long-Term Debt
Loans and financial obligations lasting over one year.
Example
A dental practice takes out a $500,000 mortgage to purchase a new office building, with a repayment term of 20 years. This mortgage is recorded as long-term debt on the practice's balance sheet.
Market Value
The amount for which something can be sold on a given market.
Example
A dental practice assesses the market value of its office building before selling it. Based on comparable property sales and market conditions, the market value is determined to be $600,000.
Mortgage
A loan used to purchase real estate, where the property serves as collateral.
Example
A dental practice takes out a mortgage to buy a new office space. The practice makes monthly payments to the lender, and the office serves as collateral for the loan.
Net Worth
The total assets minus total liabilities of an individual or company.
Example
A dental practice has $1 million in assets and $400,000 in liabilities. The net worth is $600,000, representing the owner's equity in the practice.
Operating Lease
A lease agreement for the use of an asset that does not transfer ownership rights of the asset.
Example
A dental practice leases a new dental chair under an operating lease. The practice makes monthly lease payments, but does not own the chair at the end of the lease term.
Partnership
A business organization in which two or more individuals manage and operate the business.
Example
Two dentists form a partnership to open a dental practice. They share the profits, losses, and management responsibilities according to their partnership agreement.
Petty Cash
A small amount of cash kept on hand for minor or incidental expenses.
Example
A dental practice maintains a petty cash fund of $200 for small expenses such as office supplies, staff lunches, and minor repairs. The practice tracks and replenishes the fund as needed.
Accelerated Depreciation
A method of depreciation where an asset loses value more rapidly in the earlier years of its useful life.
Example
A dental practice purchases a new X-ray machine for $50,000. Using accelerated depreciation, the practice might depreciate $20,000 in the first year, $15,000 in the second year, $10,000 in the third year, and $5,000 in the fourth year. This allows the practice to take larger depreciation expenses earlier, reducing taxable income significantly in the first few years after the purchase.
Account
A record that represents a business activity within an accounting system.
Example
In a dental practice, an account could be set up for various expenses such as 'Dental Supplies.' Every purchase of dental supplies like gloves, masks, and instruments would be recorded in this account, providing a clear view of the total spent on supplies over a period.
Accounts Payable
Money owed by a business to its suppliers shown as a liability on a company’s balance sheet.
Example
A dental practice orders $5,000 worth of dental chairs from a supplier on credit. The supplier sends an invoice, and this amount is recorded under accounts payable. The practice has 30 days to pay this invoice. Until payment is made, the $5,000 remains listed as a liability on the practice's balance sheet.
Accounts Receivable
Money owed to a business by its clients or patients, shown as an asset on a company’s balance sheet.
Example
A dental practice performs $2,000 worth of dental procedures on a patient who has insurance that will pay later. The $2,000 is recorded as accounts receivable. Once the insurance company pays the invoice, the accounts receivable is reduced, and cash increases by the same amount.
Accrual Basis Accounting
An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.
Example
A dental practice performs a procedure on December 30 but doesn't receive payment until January 10. Under accrual basis accounting, the revenue is recorded on December 30 when the service was provided, not when the payment is received in January.
Accumulated Depreciation
The total amount of depreciation expense that has been recorded against an asset since it was acquired.
Example
A dental practice purchases an autoclave for $10,000 with a useful life of 10 years. Each year, $1,000 is recorded as depreciation expense. After five years, the accumulated depreciation would be $5,000, showing the total reduction in the asset’s value over that time.
Amortization
The process of gradually writing off the initial cost of an intangible asset over a period of time.
Example
A dental practice acquires a patent for a new dental tool for $30,000 with a useful life of 10 years. Each year, the practice records $3,000 as amortization expense until the patent's value is fully written off over the 10-year period.
Asset
Anything of value that is owned by a business.
Example
The dental chairs, X-ray machines, dental instruments, and office computers in a dental practice are all considered assets. These are items owned by the practice that have value and can be used to generate revenue.
Balance Sheet
A financial statement that reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time.
Example
A dental practice's balance sheet might show assets including cash ($50,000), dental equipment ($100,000), and accounts receivable ($30,000). Liabilities might include accounts payable ($20,000) and a bank loan ($50,000). The difference between assets and liabilities represents the owner’s equity in the practice.
Bookkeeping
The recording of financial transactions and information pertaining to a business.
Example
In a dental practice, bookkeeping involves recording daily transactions such as patient payments, supplier invoices, staff salaries, and utility bills. This ensures all financial data is accurately tracked and organized for reporting and analysis.
Budget
An estimate of income and expenditure for a set period of time.
Example
A dental practice creates a budget for the next year estimating $500,000 in revenue from patient services and $300,000 in expenses including salaries, supplies, and rent. This budget helps the practice plan its finances and allocate resources effectively.
Capital
Wealth in the form of money or other assets owned by a person or organization or available for a purpose such as starting a company or investing.
Example
A dental practice owner invests $100,000 of personal savings into the practice to purchase new equipment and expand services. This investment is considered capital, providing the financial foundation to grow the business.
Cash Flow
The total amount of money being transferred into and out of a business, especially as affecting liquidity.
Example
A dental practice receives $10,000 in patient payments in one month but has $8,000 in outgoing expenses such as rent, supplies, and salaries. The cash flow for that month is $2,000, indicating the practice has enough liquidity to cover its expenses and generate surplus cash.
Cash Flow Statement
A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.
Example
A dental practice's cash flow statement might show cash inflows from patient payments and insurance reimbursements, and cash outflows for expenses like salaries, supplies, and equipment purchases. This statement provides a clear picture of how cash is being generated and used over a specific period.
Chart of Accounts
A listing of all accounts used in the general ledger of an organization.
Example
A dental practice's chart of accounts includes categories such as assets (e.g., dental equipment, office supplies), liabilities (e.g., loans, accounts payable), equity (e.g., owner’s capital), revenue (e.g., patient fees), and expenses (e.g., salaries, rent, utilities).
Collateral
An asset or property that an individual or entity offers to a lender as security for a loan.
Example
A dental practice owner takes out a loan to purchase new dental chairs and offers the existing dental equipment as collateral. If the owner fails to repay the loan, the lender has the right to seize the collateral (the dental equipment).
Compounding Interest
Interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.
Example
A dental practice deposits $10,000 in a savings account with a 5% annual interest rate. At the end of the first year, the account earns $500 in interest, making the new balance $10,500. In the second year, interest is calculated on $10,500, resulting in $525 of interest, and so on.
Cost of Goods Sold (COGS)
The direct costs attributable to the production of the goods sold by a company.
Example
A dental practice that sells dental hygiene products records the cost of the toothbrushes, toothpaste, and floss as COGS. If the practice buys these products for $2,000 and sells them for $5,000, the COGS is $2,000.
Credit
An accounting entry that either decreases assets or increases liabilities and equity on the company’s balance sheet.
Example
When a dental practice receives a $1,000 payment from a patient, it credits the accounts receivable account and debits the cash account. This transaction reduces the accounts receivable balance and increases the cash balance.
Current Asset
An asset that is expected to be converted into cash, sold, or consumed during the normal operating cycle of a business, usually one year.
Example
In a dental practice, current assets include cash, accounts receivable, and dental supplies that are expected to be used within a year. These assets are easily convertible to cash to meet short-term obligations.
Current Liability
A company’s debts or obligations that are due within one year.
Example
A dental practice's current liabilities might include accounts payable for dental supplies, short-term loans, and accrued salaries. These are obligations the practice needs to pay within the next 12 months.
Debt-to-Equity Ratio
A measure of a company’s financial leverage, calculated by dividing its total liabilities by stockholders' equity.
Example
A dental practice has $200,000 in liabilities and $400,000 in equity. The debt-to-equity ratio is 0.5 ($200,000 / $400,000), indicating the practice uses half as much debt as equity to finance its operations.
Depreciation
The reduction in the value of an asset over time, particularly in relation to wear and tear.
Example
A dental practice buys a new autoclave for $10,000 with an expected useful life of 10 years. Each year, the practice records $1,000 as depreciation expense, reducing the book value of the autoclave by $1,000 annually.
Dividend
A distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders.
Example
A dental practice, structured as a corporation, declares a $5,000 dividend. The practice’s owners, as shareholders, receive a portion of the profits based on the number of shares they hold.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's overall financial performance.
Example
A dental practice has revenue of $500,000, expenses (excluding interest, taxes, depreciation, and amortization) of $300,000. Its EBITDA is $200,000, providing a clear picture of operating profitability before non-operational costs.
Equity
The value of the shares issued by a company.
Example
In a dental practice, equity represents the owner’s residual interest in the assets of the practice after deducting liabilities. If the practice has $500,000 in assets and $200,000 in liabilities, the owner’s equity is $300,000.
Expense
The economic costs that a business incurs through its operations to earn revenue.
Example
A dental practice incurs expenses such as rent, utilities, staff salaries, and dental supplies. These expenses are necessary for the practice to operate and generate revenue from patient services.
Fixed Asset
A long-term tangible piece of property or equipment that a firm owns and uses in its operations to generate income.
Example
The dental chairs, X-ray machines, and dental instruments in a practice are fixed assets. They are used over multiple years to provide dental services to patients and generate income.
Forecasting
The process of making predictions of the future based on past and present data and most commonly by analysis of trends.
Example
A dental practice uses patient visit data from the past five years to forecast revenue for the upcoming year. This helps the practice plan its finances and allocate resources to meet expected demand.
General Ledger
A complete record of the financial transactions over the life of a company.
Example
A dental practice’s general ledger includes all financial transactions, such as patient payments, supplier invoices, payroll, and utility bills. These entries are used to prepare financial statements and track the practice’s financial health.
Gross Profit
The profit a company makes after deducting the costs associated with making and selling its products.
Example
A dental practice generates $200,000 in revenue from patient services and incurs $50,000 in costs for dental supplies and lab fees. The gross profit is $150,000 ($200,000 - $50,000).
Income Statement
A financial statement that reports a company's financial performance over a specific accounting period.
Example
A dental practice’s income statement shows revenue of $500,000, expenses of $400,000, and a net income of $100,000 for the year. This statement provides a snapshot of the practice’s profitability.
Interest
The charge for the privilege of borrowing money, typically expressed as an annual percentage rate.
Example
A dental practice takes out a $100,000 loan with an interest rate of 5%. The practice pays $5,000 in interest annually for the privilege of borrowing the money.
Inventory
The raw materials, work-in-progress goods, and finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.
Example
A dental practice’s inventory includes dental supplies such as gloves, masks, and instruments. These items are used in daily operations to provide patient care.
Liability
Something a person or company owes, usually a sum of money.
Example
A dental practice has a $50,000 loan and $20,000 in accounts payable for supplies. These amounts are recorded as liabilities on the practice’s balance sheet.
Liquidity
The availability of liquid assets to a market or company.
Example
A dental practice has $30,000 in cash and $20,000 in accounts receivable. This liquidity ensures the practice can meet short-term obligations like payroll and supplier invoices.
Loan Principal
The amount of money that is borrowed and on which interest is paid.
Example
A dental practice borrows $100,000 to purchase new equipment. The loan principal is $100,000, which the practice will repay over time, along with interest.
Net Income
The total profit of a company after all expenses and taxes have been deducted from revenue.
Example
A dental practice earns $500,000 in revenue and incurs $400,000 in expenses, including taxes. The net income is $100,000, representing the practice’s profit after all costs are accounted for.
Operating Expenses
The costs required for a company to run its day-to-day operations.
Example
A dental practice’s operating expenses include rent, salaries, utilities, and dental supplies. These are necessary costs to keep the practice running and providing services to patients.
Overhead
The ongoing business expenses not directly attributed to creating a product or service.
Example
A dental practice’s overhead includes administrative costs, office supplies, insurance, and utilities. These expenses are essential for the overall operation but are not directly tied to patient care services.
Payroll
The total of all compensation a business must pay to its employees for a set period or on a given date.
Example
A dental practice’s payroll includes salaries and wages for dentists, hygienists, assistants, and administrative staff. This regular payment is crucial for retaining skilled employees and ensuring smooth operations.
Profit Margin
A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales.
Example
A dental practice has a net income of $100,000 and revenue of $500,000. The profit margin is 20% ($100,000 / $500,000), indicating the practice earns 20 cents for every dollar of revenue.
Quick Ratio
An indicator of a company’s short-term liquidity position, calculated by dividing the sum of cash and cash equivalents, marketable securities, and accounts receivable by the company’s current liabilities.
Example
A dental practice has $30,000 in cash, $20,000 in accounts receivable, and $25,000 in current liabilities. The quick ratio is 2.0 (($30,000 + $20,000) / $25,000), indicating the practice can cover its short-term liabilities twice over with its most liquid assets.
Revenue
The income generated from normal business operations.
Example
A dental practice’s revenue comes from patient fees for services like cleanings, fillings, and orthodontics. In one year, the practice generates $500,000 in revenue from these services.
Return on Investment (ROI)
A measure of the profitability of an investment.
Example
A dental practice invests $10,000 in a new marketing campaign and generates $50,000 in additional revenue. The ROI is 400% (($50,000 - $10,000) / $10,000), indicating a significant return on the marketing investment.
Salaries
Fixed regular payments, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee.
Example
A dental practice pays its office manager an annual salary of $50,000, which is distributed in biweekly payments of approximately $1,923. This regular salary ensures the manager’s compensation is consistent and predictable.
The residual interest in the assets of the entity after deducting liabilities.
Example
A dental practice has $500,000 in assets and $200,000 in liabilities. The shareholders’ equity is $300,000, representing the owners’ claim on the remaining assets after all liabilities are settled.
Tax Liability
The total amount of tax that an individual or business is legally obligated to pay to a taxing authority.
Example
A dental practice calculates its taxable income for the year as $100,000. With a corporate tax rate of 21%, the tax liability is $21,000. This amount must be paid to the government to satisfy the practice’s tax obligations.
Trial Balance
A bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal.
Example
At the end of the month, a dental practice prepares a trial balance, listing all accounts and their balances. The total debits and total credits must match, ensuring the accounting records are accurate and complete.
Working Capital
The difference between a company's current assets and current liabilities.
Example
A dental practice has current assets of $60,000 (cash, accounts receivable, and supplies) and current liabilities of $30,000 (accounts payable and short-term loans). The working capital is $30,000, providing a cushion to cover short-term obligations and invest in day-to-day operations.