Which of the following is most consistent with the self-liquidating debt principle in working capital management?

Question

Quizplus · Accepted Answer

The self-liquidating debt principle in working capital management recommends financing short-term assets with short-term liabilities. Financing accounts receivable with short-term lines of credit is consistent with this principle because the loan can be repaid with the cash received from the collection of receivables. This avoids the risk of financing long-term assets with short-term debt (option A) or financing inventory with equity (option B). Option D suggests borrowing on a floating rate basis for permanent assets, which is not consistent with the self-liquidating debt principle.

Which of the Following Is Most Consistent with the Self-Liquidating