As a firm's sales grow, its current assets also tend to increase. For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable. Thus, spontaneous liabilities that reduce AFN arise from transactions brought on by sales increases. a. Trueb. False

Question

Business

Brandt

25 February, 10:01

As a firm's sales grow, its current assets also tend to increase. For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable. Thus, spontaneous liabilities that reduce AFN arise from transactions brought on by sales increases. a. Trueb. False

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Answers (1)

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Amina · Answer 1

It is TRUE.

Explanation:

Explanation : As Sales grow, we need to turn up inventory to meet the demand and this makes accounts payable to rise too and the funds generated through increased sales would have to be used to make payments to the payables. This is how an operating cycle work and hence the answer is TRUE.