Which items comprise operating current assets? Why is it reasonable to assume that they grow proportionally to sales?

Which items comprise operating current assets? Why is it reasonable to assume that they grow proportionally to sales?

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June 20, 2021
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Which items comprise operating current assets? Why is it reasonable to assume that they grow proportionally to sales?

Answer and ExplanationSolution by a verified expert

Explanation

Operating current assets are short term assets for maintaining the operations of a business. The operating current assets typically are cash, accounts receivable and inventory. These are short term assets (less than one year) and are necessary for supporting the operations.
The value of these assets directly depend upon the level of sales. As the sales increase, the value of operating current assets will increase to maintain the sales level and vice versa. For instance as the sales increase, the cash inflow will increase, also due to credit extended, the level of accounts receivable will also increase and so will the inventory to be maintained.
Source:
Spontaneous Assets. (2020). Retrieved 29 July 2020, from https://www.investopedia.com/terms/s/spontaneousassets.asp

Answer

The operating current assets typically are cash, accounts receivable and inventory.
The value of these assets directly depend upon the level of sales.

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