Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

9. Current Liabilities

Types of Liabilities

Financial Accounting

9. Current Liabilities

Types of Liabilities

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Multiple Choice

A business that has too little working capital can take which of the following actions to improve its financial position?

Reduce accounts receivable turnover

Increase long-term investments

Obtain a short-term loan to increase current assets

Purchase additional fixed assets

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Verified step by step guidance

Understand the concept of working capital: Working capital is calculated as Current Assets - Current Liabilities. It represents the liquidity available to a business for day-to-day operations.

Analyze the options provided: Reducing accounts receivable turnover or increasing long-term investments would not directly improve working capital. Purchasing additional fixed assets would decrease current assets, further reducing working capital.

Focus on the correct action: Obtaining a short-term loan increases current assets (cash or equivalent), which directly improves working capital.

Explain the impact: By increasing current assets through a short-term loan, the business enhances its liquidity and ability to meet short-term obligations.

Summarize the solution: The correct action to improve working capital is to obtain a short-term loan, as it directly increases current assets and strengthens the financial position.