In general, the larger the portion of a firm's sales that are on credit, the ...
A. lower will be the form's need to borrow
B. higher will be the firm's need to borrow
C. more rapidly credit sales will be paid off
D. more the firm can buy raw materials on credit
I think this question is straight foward. When a company sells its inventory on credit the inventory decreases and the company's cash is less, so the company will have a higher need to bowwor. B is my answer....Is this correct???
Yes, your understanding of the question is correct. When a company sells its inventory on credit and does not receive immediate cash payment, it means that the company's accounts receivable increases while its cash balance remains the same. This decreases the company's liquidity and available cash, resulting in a higher need to borrow funds to finance ongoing operations and cover expenses.
Therefore, in this case, option B is the correct answer: "higher will be the firm's need to borrow."