Method · 5 min read

Working capital and cash: where the money went between two balances

Published by Variance Works - Updated 23 August 2026

Profit was fine and the bank account was not. The gap usually sits in three lines of the balance sheet - what customers owe you, what sits on your shelves, and what you owe your suppliers - and a P&L never shows any of them.

The question it answers

The whole analysis is one identity, and everything follows from it:

• Net working capital = receivables + inventory + other current assets - payables - other current liabilities
• Cash impact = minus the change in net working capital

Take two points, get the working capital at each, and the cash effect of every account that moved between them - grouped into five closed types, and reconciling to the total.

The sign is the whole subject

A receivable going up consumes cash: the customer has not paid yet. A supplier debt going up releases it: you have not paid yet. Invert either one and the whole bridge reads backwards, with nothing in the totals to contradict you.

Two declarations protect that, and neither is guessed:

• What each account type means - receivables, inventory, payables, other current asset, other current liability. Five types, closed. A supplier debt filed among the assets would consume cash instead of releasing it.
• How your file writes balances - all positive, or liabilities negative. A trial balance and a management report write the same figures in two opposite ways, and nothing in the values tells them apart.

Both travel with the result, into the workbook and into the review pack.

One axis at a time

There are two honest ways to read working capital, and they must not be crossed:

• Two dates of one scenario - how working capital moved over time.
• Two scenarios of one date - how it differs from the plan.

Comparing the Q1 budget with the Q2 actual would mix the passage of time with the gap to plan, and neither would stay readable. The screen locks the axis you are not moving and names it, so the comparison cannot quietly become two comparisons at once.

The columns you need

• A period label and a scenario label.
• An account, meaning the same account on both sides.
• An account type, mapped to one of the five.
• A closing balance at that date.

Revenue, cost of goods and the length of the period are optional, and they unlock the days: receivable days, inventory days, payable days. Each disappears on its own - a missing cost of goods does not stop you reading customer payment delay. A value that varies inside a period switches off that period's days and says so.

Without any of them, the cash bridge is still exact. It needs no denominator.

What it looks like on a small balance

The sample file has seven accounts at two quarter ends. Working capital went from 102,000 to 109,000: it grew by 7,000, and growing it had to be funded - a cash impact of -7,000.

By type:

• Receivables -13,000 of cash - one account rose from 120,000 to 138,000.
• Inventory -3,000 - one warehouse drew down, another built up.
• Payables +15,000 - 95,000 to 110,000, and unpaid suppliers hold cash.
• Other current assets -3,000 and other current liabilities -3,000.

The five add to -7,000 with nothing left over. And the days move the same way: receivable days from 37.5 to 38.1, payable days from 47.5 to 50.6.

What it will not do

It is not a cash flow statement. It explains the cash impact of working capital and nothing else. Profit, investment, financing, tax and currency are outside it, and a reader looking for the total change in cash will not find it here.

The five types are closed. A sixth would be a decision, not one more box.

It forecasts nothing. It reads two points that already exist, and does not extrapolate a third.

It recommends nothing. No collection target, no stock policy, no payment terms advice.

Questions

My file only has one date. Can I still use it?

Yes, if it carries two scenarios at that date - you then read the gap to plan. A file with one date and one scenario has nothing to compare, and the tool says so rather than opening an empty screen.

What happens if a balance comes out negative?

It is counted and shown, never corrected. A negative balance after normalisation is usually the sign of a sign convention declared the wrong way round.

Does my file leave the browser?

No. The whole calculation runs in the page, on your machine. There is no upload, no account, and no server that could hold your figures. How to verify that in two minutes.