In general it is better to use current liabilities to finance current assets and long-term debt to finance long-term assets.

Question

Quizplus · Accepted Answer

This is because current liabilities are short-term debts that need to be repaid within a year and are typically used to finance day-to-day operations and immediate expenses. On the other hand, long-term debt, such as bonds or mortgages, is used to finance long-term investments such as property, equipment, and other assets that will provide value over a longer period of time. Matching the terms of the debt with the expected life of the asset being financed helps to ensure that the organization's cash flow is balanced and sustainable over time.

In General It Is Better to Use Current Liabilities to Finance