Question
Which one of the following is a source of cash?
repurchase of common stock
acquisition of debt
purchase of inventory
payment to a supplier
granting credit to a customer
repurchase of common stock
acquisition of debt
purchase of inventory
payment to a supplier
granting credit to a customer
Ask by Long Barnett. in the United States
Mar 24,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
Acquiring debt is a source of cash.
Solution
-
The repurchase of common stock involves using cash to buy back shares, which is a cash outflow.
-
Acquiring debt means borrowing funds (or issuing bonds), which brings cash into the company. This is considered a source of cash. In other words, if a company borrows an amount
, then the cash inflow is . -
Purchasing inventory uses cash to buy goods, so it is a cash outflow.
-
Payment to a supplier uses cash to settle obligations, resulting in a cash outflow.
-
Granting credit to a customer essentially means selling on credit, where no immediate cash is received, so it does not provide an immediate source of cash.
Thus, among the options, the acquisition of debt is the source of cash.
Answered by UpStudy AI and reviewed by a Professional Tutor
Like
error msg
Explain 
Simplify this solution Extra Insights
Acquisition of debt is a source of cash, as it involves borrowing money, which increases the available cash for a company to use for various purposes like investing or paying liabilities. Essentially, when a company takes on debt, it gets cash in hand, adding to its resources!
In contrast, activities like repurchasing stock or purchasing inventory typically use cash, making them cash outflows. Understanding the cash flow implications of financial decisions is essential for maintaining a healthy balance sheet and ensuring the company can fund its operations and growth.
