Accruals arise automatically from a firm's operations and are "free" capital in the sense that no explicit interest must normally be paid on accrued liabilities.

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Accruals refer to expenses or revenues that have been earned or incurred but not yet paid or received. Since these arise naturally from a firm's operations, they do not require explicit interest payments like borrowed capital does. Therefore, they can be considered "free" capital in this sense.

Accruals Arise Automatically from a Firm's Operations and Are "Free