Explain What Is Meant by the Term Limited Liability as It

question 24

Essay

Explain what is meant by the term limited liability as it relates to the shareholders of a corporation; and explain why shareholders are able to gain the benefit of limited liability whereas sole traders cannot.

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Definitions:

Paying Suppliers

The process of settling financial transactions with suppliers by transferring payment for goods or services received.

Inventory Period

The duration of time it takes for a company to sell its inventory and convert it into sales, often measured in days or months.

Slow-selling Merchandise

Items in inventory that move or sell at a slower pace than anticipated, often leading to excess stock and markdowns.

Cash Cycle

Refers to the amount of time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.