In Wes Forgione’s explanation, the agreement sets a working-capital target as the benchmark, uses an estimate at closing and settles the difference after finalizing the closing-date balance.
Consider this fictional, dollar-for-dollar cash settlement. All figures use identical agreed accounts and measurement rules; no other adjustments or costs are modelled.
Target: C$400,000.
Estimated closing-date balance: C$450,000. Buyer pays the C$50,000 excess at closing.
Finalized closing-date balance: C$420,000. Subtracting the target leaves a C$20,000 total adjustment.
The seller returns C$30,000: C$420,000 minus C$450,000. The final balance remains above target; the refund reconciles the earlier payment.
The final calculation is prepared later, but measures closing day.
What belongs in the calculation?
Greg Shagalovich’s 2022 article, hosted by Marcil Lavallée, lists receivables net of doubtful-account allowances and inventory as possible components. It lists deferred revenue only when the agreement does not treat it as indebtedness.
His point is useful before comparing balances: check which accounts the agreement includes. Diligence questions can then become specific: which receivables are collectible, is inventory saleable, and do the cut-off and accrual procedures capture the relevant bills? Shagalovich identifies those areas for examination; the article does not choose treatments for your transaction.
For the process, Forgione recommends specifying statement deadlines, objection requirements and access to review records.