Which of the following assumptions is embodied in the AFN equation?
A) All balance sheet accounts are tied directly to sales.
B) Accounts payable and accruals are tied directly to sales.
C) Common stock and long-term debt are tied directly to sales.
D) Fixed assets,but not current assets,are tied directly to sales.
E) Last year's total assets were not optimal for last year's sales.

Question

Quizplus · Accepted Answer

The AFN (Additional Funds Needed) equation assumes that certain accounts, specifically accounts payable and accruals, vary directly with sales. This means as sales increase, these accounts are expected to increase proportionally, reflecting the direct relationship between sales and the financing needed to support sales activities.

Which of the Following Assumptions Is Embodied in the AFN