According to the matching principle, short-term needs for funds should be financed by short-term sources of funds; long-term need for funds should be financed by long-term sources of funds.

Question

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The matching principle emphasizes that the timing and duration of sources of funds should match the timing and duration of the needs for those funds. Short-term needs for funds, such as inventory purchases and accounts payable, should be financed by short-term sources of funds, such as lines of credit and trade credit. Long-term needs for funds, such as property, plant, and equipment purchases, should be financed by long-term sources of funds, such as loans or equity. This helps to ensure that a company maintains a healthy balance between short-term and long-term obligations and avoids liquidity problems caused by mismatched funding sources.

According to the Matching Principle, Short-Term Needs for Funds Should