The matching principle suggests that
1) equipment should be financed with long-term sources
2) current assets may be financed with short-term sources
3) plant should not be financed with short-term sources
A)1 and 2
B)1 and 3
C)2 and 3
D)1, 2, and 3

Question

​The matching principle suggests that
1) equipment should be financed with long-term sources
2) current assets may be financed with short-term sources
3) plant should not be financed with short-term sources
A)​1 and 2
B)​1 and 3
C)​2 and 3
D)​1, 2, and 3

Quizplus · Accepted Answer

The matching principle in finance suggests that the duration of the financing should match the life of the asset being financed. Therefore, long-term assets like equipment and plants should be financed with long-term sources, and short-term assets can be financed with short-term sources. This principle helps in managing the risk of financing and ensures that the cash flows from the assets can be used to pay off the financing without causing liquidity issues.

​The Matching Principle Suggests That

The Matching Principle Suggests That