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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?
Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.
Reason (R): The basic nature of a business influences the amount of working capital required.
- a)Both A and R are true and R is the correct explanation of A
- b)Both A and R are true, but R is not the correct explanation of A
- c)A is true, but R is false
- d)A is false, but R is true
Correct answer is option 'A'. Can you explain this answer?
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Direction: In the questions given below are two statements labelled a...
The working capital requirement of the manufacturing companies is usually high as they require huge stock-in-trade (inventories) and the amount of their debtors is also expected to be large because of the credit sales involved.
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Direction: In the questions given below are two statements labelled a...
Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.
Reason (R): The basic nature of a business influences the amount of working capital required.
The correct answer is option 'A', which means both the assertion and reason are true, and the reason is the correct explanation of the assertion.
Explanation:
Working Capital:
Working capital refers to the funds required by a business to cover its day-to-day operational expenses, such as purchasing inventory, paying salaries, and meeting other short-term obligations. It is calculated by subtracting current liabilities from current assets.
Trading Organisation:
A trading organization is primarily involved in buying and selling goods or services without undergoing any significant transformation. They act as intermediaries between manufacturers and customers, earning a profit by purchasing goods from manufacturers and selling them to customers.
Manufacturing Organisation:
A manufacturing organization, on the other hand, is involved in the production of goods by transforming raw materials into finished products. They have production facilities and are responsible for the entire production process.
Difference in Working Capital:
The nature of a business, whether it is a trading organization or a manufacturing organization, has a significant impact on the amount of working capital required. This is because the operating cycle and the nature of expenses differ between the two types of businesses.
Operating Cycle:
The operating cycle of a trading organization is relatively shorter compared to a manufacturing organization. In a trading organization, the cycle involves purchasing goods from suppliers, holding them in inventory, and selling them to customers. The time taken for this cycle is generally shorter as there is no extensive production process involved.
Nature of Expenses:
A trading organization usually incurs fewer expenses compared to a manufacturing organization. Manufacturing organizations have additional expenses related to raw materials, labor, production equipment, and overhead costs associated with the production process.
Conclusion:
Due to the shorter operating cycle and lower expenses, a trading organization usually requires a smaller amount of working capital compared to a manufacturing organization. Therefore, both the assertion and reason are true, and the reason correctly explains why a trading organization needs a smaller amount of working capital.
Reason (R): The basic nature of a business influences the amount of working capital required.
The correct answer is option 'A', which means both the assertion and reason are true, and the reason is the correct explanation of the assertion.
Explanation:
Working Capital:
Working capital refers to the funds required by a business to cover its day-to-day operational expenses, such as purchasing inventory, paying salaries, and meeting other short-term obligations. It is calculated by subtracting current liabilities from current assets.
Trading Organisation:
A trading organization is primarily involved in buying and selling goods or services without undergoing any significant transformation. They act as intermediaries between manufacturers and customers, earning a profit by purchasing goods from manufacturers and selling them to customers.
Manufacturing Organisation:
A manufacturing organization, on the other hand, is involved in the production of goods by transforming raw materials into finished products. They have production facilities and are responsible for the entire production process.
Difference in Working Capital:
The nature of a business, whether it is a trading organization or a manufacturing organization, has a significant impact on the amount of working capital required. This is because the operating cycle and the nature of expenses differ between the two types of businesses.
Operating Cycle:
The operating cycle of a trading organization is relatively shorter compared to a manufacturing organization. In a trading organization, the cycle involves purchasing goods from suppliers, holding them in inventory, and selling them to customers. The time taken for this cycle is generally shorter as there is no extensive production process involved.
Nature of Expenses:
A trading organization usually incurs fewer expenses compared to a manufacturing organization. Manufacturing organizations have additional expenses related to raw materials, labor, production equipment, and overhead costs associated with the production process.
Conclusion:
Due to the shorter operating cycle and lower expenses, a trading organization usually requires a smaller amount of working capital compared to a manufacturing organization. Therefore, both the assertion and reason are true, and the reason correctly explains why a trading organization needs a smaller amount of working capital.
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.Reason (R): The basic nature of a business influences the amount of working capital required.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'A'. Can you explain this answer?
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Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.Reason (R): The basic nature of a business influences the amount of working capital required.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'A'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.Reason (R): The basic nature of a business influences the amount of working capital required.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.Reason (R): The basic nature of a business influences the amount of working capital required.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'A'. Can you explain this answer?.
Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.Reason (R): The basic nature of a business influences the amount of working capital required.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'A'. Can you explain this answer? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.Reason (R): The basic nature of a business influences the amount of working capital required.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.Reason (R): The basic nature of a business influences the amount of working capital required.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'A'. Can you explain this answer?.
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ample number of questions to practice Direction: In the questions given below are two statements labelled as Assertion (A) and Reason (R). In the context of the two statements, which one of the following is correct?Assertion (A): A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation.Reason (R): The basic nature of a business influences the amount of working capital required.a)Both A and R are true and R is the correct explanation of Ab)Both A and R are true, but R is not the correct explanation of Ac)A is true, but R is falsed)A is false, but R is trueCorrect answer is option 'A'. Can you explain this answer? tests, examples and also practice Commerce tests.
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