Because of the short-term nature of working capital assets and liabilities, it is always necessary to support working capital with short-term borrowing. To do otherwise would violate the matching principle, which is of paramount importance in financial management.

Question

Quizplus · Accepted Answer

The matching principle does not dictate that working capital must always be financed with short-term borrowing. Companies often use a mix of short-term and long-term financing to meet their working capital needs, depending on their risk tolerance, financial strategy, and the availability of financing options.

Because of the Short-Term Nature of Working Capital Assets and Liabilities