An increase in the firm's inventory balance normally will require additional financing unless the increase is matched by an equally large decrease in some other asset account.

Question

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When inventory increases, it ties up more of the firm's cash and assets. If there is no increase in sales or revenue, and the firm must purchase more inventory on credit, this can lead to higher accounts payable and a need for additional financing to cover the increased expenses. Therefore, an increase in the firm's inventory balance normally requires additional financing unless there is a decrease in some other asset account of equal size.

An Increase in the Firm's Inventory Balance Normally Will Require