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* * Short - term vs . Long - term Capital in Accounting * * In accounting and finance, capital refers to the financial resources

**Short-term vs. Long-term Capital in Accounting**
In accounting and finance, capital refers to the financial resources available to a business for funding its operations and investments. Understanding the distinction between short-term and long-term capital is crucial for effective financial management and decision-making.
**Case Study:**
XYZ Corporation, a manufacturing company, is considering its capital structure to support its growth plans. The company needs to determine the appropriate mix of short-term and long-term capital to finance its operations and investments effectively.
**Short-term Capital:**
Short-term capital, also known as working capital, refers to funds that are expected to be used or replenished within a year. It includes current assets such as cash, accounts receivable, and inventory, as well as current liabilities like accounts payable and short-term loans.
For XYZ Corporation, short-term capital plays a vital role in meeting day-to-day operational expenses, purchasing inventory, and managing cash flow fluctuations. Short-term financing options such as lines of credit and trade credit provide flexibility and liquidity to support the company's ongoing operations.
**Long-term Capital:**
Long-term capital comprises funds that are intended to be invested in the business for more than a year. It includes long-term debt, such as bonds and bank loans with maturity dates beyond one year, as well as equity financing from shareholders.
In the case of XYZ Corporation, long-term capital is essential for funding capital expenditures, such as acquiring new equipment, expanding production facilities, and investing in research and development initiatives. Long-term financing options enable the company to undertake strategic investments that support its long-term growth objectives.
**Objective Question:**
Which of the following statements best describes short-term capital?
A) It includes funds expected to be used or replenished within a year.
B) It comprises long-term debt with maturity dates beyond one year.
C) It is primarily used to finance capital expenditures.
D) It refers to equity financing from shareholders.
Choose the correct option:
A) A
B) B
C) C
D) D

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