Explanation:

Working capital refers to the funds that are used to cover the day-to-day operational expenses of a business. It is the difference between a company's current assets and its current liabilities. The statement given in the question is true, and it can be explained as follows:

Importance of Working Capital:

Working capital is essential for the smooth functioning of a business. It is required to meet the day-to-day expenses and to ensure that the business operations run smoothly. Without sufficient working capital, a company may face difficulties in paying its bills, buying inventory, and meeting other short-term obligations.

Meeting Day-to-Day Expenses:

One of the primary purposes of working capital is to cover the day-to-day expenses of a business. These expenses include salaries and wages, rent, utilities, raw materials, and other operating costs. Having enough working capital ensures that these expenses can be paid on time, allowing the business to operate smoothly.

Facilitating Smooth Functioning:

Working capital also plays a crucial role in facilitating the smooth functioning of the business. It provides the necessary funds to maintain inventory levels, fulfill customer orders, and manage the cash flow. For example, if a company does not have enough working capital to purchase inventory, it may face stockouts and lose potential sales.

Seasonal Fluctuations:

Working capital is particularly important for businesses that experience seasonal fluctuations in sales. During the low season, when sales are slow, working capital helps cover the expenses and keep the business running until the high season arrives. It provides the necessary cushion to bridge the gap between sales and expenses.

Dealing with Unexpected Events:

Having sufficient working capital also enables a business to deal with unexpected events or emergencies. For instance, if a major piece of equipment breaks down, working capital can be used to repair or replace it. This ensures that the business can continue its operations without major disruptions.

Conclusion:

In conclusion, working capital is indeed required to meet day-to-day expenses and facilitate the smooth functioning of a business. It ensures that operational expenses can be met, inventory can be maintained, and cash flow remains healthy. Without sufficient working capital, a business may struggle to operate effectively and face various financial challenges.