What Happens to a Firm Whose Uses of Cash Exceed

question 53

Multiple Choice

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

• A)it borrows on a short-term basis
• B)it declares a net loss on the income statement
• C)it experiences an increase in cash balance
• D)it experiences a decrease in cash balance

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Definitions:

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the scale of operation increases with the reduction in average costs.

Fixed Costs

Fixed costs are business expenses that remain unchanged regardless of the level of production or sales, such as rent, salaries, and insurance premiums.

Capital

Resources made and used by humans to produce goods and services, including buildings, machinery, and equipment.

Barriers to Entry

Obstacles that prevent new competitors from easily entering an industry or area of business.