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If an entrepreneur's sales are increasing but cash shortage continues, what could be a likely reason?

Answer and explanation

Correct answer: Credit sales causing delayed cash collection

Revenue from a credit sale may be recorded when the sale is made, but cash is received only when the customer pays. Meanwhile, the enterprise may need to pay suppliers, wages, rent, and other expenses. Thus sales growth and cash availability are different matters. Delayed collection can create a cash-flow shortage even when accounting sales are rising.

Related tags

Cash-FlowCredit-SalesConceptNature And Importance Of Business FinanceConcept Nature And Importance Of Business FinanceSources Of Business FinanceBusiness StudiesClass 11 Mcq

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