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As long as sales revenues exceed all costs over part of an accounting period, a firm...

As long as sales revenues exceed all costs over part of an accounting period, a firm will avoid any cash shortage.

true or false

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Answer #1

False....

If sales revenue is exceeding costs then it means company is generating profit. However generation of profit does not necessarily means company has cash surplus. For example - Company might be sellinggoods/ services on credit and major part of it is not received whereas company would be paying cash for expenses. In such cash there would be cash shortage.

Further if the company has some investment oppurtnity/capital expenditure , then also the company may face cash shortage situation.

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