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$**$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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