Question

Which of the following could lead to cash flow problems?

(a) Obsolete inventory, accounts receivable of inferior quality, easing of credit by suppliers.
(b) Slow-moving inventory, accounts receivable of inferior quality, tightening of credit by suppliers.
(c) Obsolete inventory, increasing notes payable, easing of credit by suppliers.
(d) Obsolete inventory, improved quality of accounts receivable, easing of credit by suppliers

Answer 1

Obsolete inventory, increasing notes payable, and easing of credit by suppliers could lead to cash flow problems.

Step-by-step explanation:

The correct option that could lead to cash flow problems is option (c): Obsolete inventory, increasing notes payable, and easing of credit by suppliers.

Cash flow problems occur when a business has difficulty generating enough cash to cover its expenses and obligations. In this case, obsolete inventory means that the business is holding inventory that is no longer in demand and cannot be sold, which ties up cash. Increasing notes payable means that the business has borrowed more money, which increases its debt and the interest expense. Easing of credit by suppliers means that the business is allowed more time to pay its suppliers, which delays cash outflows.

Together, these factors can lead to a decrease in cash inflows and an increase in cash outflows, resulting in cash flow problems for the business.