When a company finances its short-term assets with short-term debt,this is known as the:
A) identical principle.
B) equalisation theory.
C) corresponding principle.
D) matching principle.

Question

Quizplus · Accepted Answer

The matching principle states that a company should use financing that matches the duration of its assets, resulting in a better match between the timing of cash inflows and outflows. Financing short-term assets with short-term debt is consistent with this principle. Options A, B, and C are not valid principles in relation to this scenario.

When a Company Finances Its Short-Term Assets with Short-Term Debt,this