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.
Frequently asked questions
What is the correct answer to this question?
Credit sales causing delayed cash collection
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Business Studies question. Chapter: Sources of Business Finance. Topic: Concept, nature and importance of business finance.
