Firms need to borrow for operating purposes because they
A)need to pay for goods and services after they have sold them.
B)need to pay for goods and services before they will have revenue from their sales.
C)are always in debt.
D)need constant bailouts.

Question

Quizplus · Accepted Answer

Firms often need to borrow money to pay for their expenses and purchases before they receive revenue from their sales. This is especially true for businesses that sell goods or services on credit, as they may not receive payment from their customers until a later date. Borrowing allows them to cover their costs in the meantime. Option A is incorrect because if they have already sold their goods and services, they would have received revenue from those sales. Option C and D are incorrect as they are both generalizations and not true for all firms.

Firms Need to Borrow for Operating Purposes Because They