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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
ISBN: 9781305635937
Textbook Problem
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Why are accruals called spontaneous sources of funds, what are their costs, and why don’t firms use more of them?

Summary Introduction

To explain: The reason behind the treatment of accruals, as spontaneous source of funds and their limited use by firms. The cost of accruals to use.

Introduction:

Accruals:

The incurred expenses without payment of cash related to those expenses are termed as accruals. These are classified as current liabilities (short-term) in the financial statements.

Explanation

Spontaneous source of funds:

Due tothe automatic generation of accruals without the implementation of any particular activity for its generation, these are treated as a spontaneous source of funds.

Cost of accruals

The outstanding amount related to accruals can be utilized by the company free of cost (without any charge).

Limited use:

The number of accruals depends upon the expenses related to them, which are incurred by the company during the operations...

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