Which items comprise operating current assets? Why is it reasonable to assume that they grow proportionally to sales?
Operating current assets includes:
Accounts receivable- Accounts receivables are money owed to a company by its debtors.
Inventory- Inventory includes raw material, finished goods and work in progress goods lying with a business at a point of time.
Cash- Cash is the most liquid asset lying with the firm to meet its daily operations.
Operating current assets are used in performing daily business operations and with an increase in level of sales, the requirement for these assets also increases to meet the growing sales. Therefore, it is reasonable to assume that operating current assets grow proportionally with sales.
Operating current assets include cash, accounts receivable and inventory.
The operating assets grow proportionally with sales because these assets are used to run the daily business operations which helps in generating sales.
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