Ideally, permanent current assets should be financed with short-term borrowings.

Question

Quizplus · Accepted Answer

Permanent current assets, such as inventory and accounts receivable, require long-term financing as they are continually required to support the business's sales operations. On the other hand, short-term borrowings should be used to finance temporary current assets, such as seasonal fluctuations in inventory or accounts payable. Using short-term borrowings to finance permanent current assets can lead to liquidity and solvency issues for the business in the long term.

Ideally, Permanent Current Assets Should Be Financed with Short-Term Borrowings