Consider the following statements about nature of business as a factor affecting the working capital requirements:
(A) A trading organisation usually needs a smaller amount of working capital than a manufacturing organisation.
(B) In a trading organisation, there is usually no distinction between raw materials and finished goods.
(C) In a trading organisation, sales can be effected immediately upon the receipt of materials, sometimes even before that.
(D) Service industries, which usually do not have to maintain debtors, require less working capital.
Which of the statements given above are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A), (B) and (C) only
(A) A trading organisation usually needs a smaller amount of working capital than a manufacturing organisation. — Correct. A trading firm buys goods and sells them as they are. There is usually no processing, so it needs less working capital than a manufacturing firm.
(B) In a trading organisation, there is usually no distinction between raw materials and finished goods. — Correct. With no processing, the goods a trader buys are the goods it sells. So there is no separate stage of raw materials and finished goods.
(C) In a trading organisation, sales can be effected immediately upon the receipt of materials, sometimes even before that. — Correct. A trader can sell goods as soon as they arrive, sometimes even before. A manufacturing firm must first turn raw material into finished goods before it can sell.
(D) Service industries, which usually do not have to maintain debtors, require less working capital. — Incorrect. Service industries need less working capital because they usually do not have to maintain inventory. A service firm has no stock of goods to hold; the word “debtors” has replaced “inventory” in this statement.
NCERT (2026-27 Edition): “1. Nature of Business: The basic nature of a business influences the amount of working capital required. A trading organisation usually needs a smaller amount of working capital compared to a manufacturing organisation. This is because there is usually no processing. Therefore, there is no distinction between raw materials and finished goods. Sales can be effected immediately upon the receipt of materials, sometimes even before that. In a manufacturing business, however, raw material needs to be converted into finished goods before any sales become possible. Other factors remaining the same, a trading business requires less working capital. Similarly, service industries which usually do not have to maintain inventory require less working capital.” |