(Percent of sales forecasting) Which of the following accounts would most likely vary directly with the level of a firm's sales? Discuss each briefly.
Yes No Yes No
Cash ___ ___ Notes payable ___
Marketable securities ___ ___ Plant and equipment ___
Accounts payable ___ ___ Inventories ___
The current assets and spontaneous liabilities vary directly with sales since these are components of the working capital. Working capital is linked to the level of sales and so varies with the sales.
From the above, cash, ...
The solution explains which elements of a balance sheet will change along with sales.