In what sense do accounts payable and accruals provide “spontaneous funds” to a growing firm?
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In what sense do accounts payable and accruals provide “spontaneous funds” to a growing firm? |
Answer and Explanation
Explanation
Growing firms with shortage of funds can increase their production by purchasing raw materials on credit and pay back to the suppliers after a certain period. Also, firms pay the wages...
Explanation
Growing firms with shortage of funds can increase their production by purchasing raw materials on credit and pay back to the suppliers after a certain period. Also, firms pay the wages to workers at the end of a fixed period when sales are realised. This ensures the spontaneous availability of raw materials and labour and does not hinder the production even when the firm does not have funds at the time of the production process.
Verified Answer
Accounts payables and accruals provide spontaneous funds to the firms by providing raw materials on credit and labour services on accrual basis.
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