Question

Current assets of a business firm should be financed through:

• A. long-term liability only
• B. current liability only
• C. both types (i.e. long and short term liabilities)
• D. None of these

Answer 1

The correct option is C both types (i.e. long and short term liabilities)

Current assets are those assets which, in the normal routine of the business, get converted into cash or cash equivalents within one year e.g. inventories, debtors etc. Hence these should be financed by both long term and short term libility.