Which of the Following Firms Would Be Expected to Need

question 5

Multiple Choice

Which of the following firms would be expected to need the most cash to conduct its daily operations?

• A) a retail grocery store that sells on a cash only basis
• B) an electronics manufacturer that only assemble its goods once they have been paid for
• C) an airline that has many of its fares pre-paid by cash or credit card
• D) an aircraft manufacturer with large inventory and long development and sales cycles

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Definitions:

Matching Principle

The accounting concept that expenses should be recognized in the same period as the revenues they helped to generate.

Temporary Differences

Differences between taxable income and accounting income that are only for a limited period and will reverse in the future.

Depreciable Assets

Assets subject to depreciation, which entails allocating the cost of tangible assets over their useful lives to account for wear and tear.

Deferred Tax Liability Balance

An accounting term for taxes that are owed but not yet paid, a result of temporary differences between the tax basis of assets or liabilities and their carrying amount in the financial statements.