Question

Which one of the following best describes the concept of erosion? a. The cash flows of a new product that come at the expense of a firm's existing cash flow. b. Expenses that have already been incurred and cannot be recovered. c. The alternative that is forfeited when a fixed asset is utilized by a project. d. The differences in a firm's cash flows with and without a particular project. e. Change in net working capital related to implementing a new project.

Answer 1

Answer:

the best description for the concept of erosion is option A) The cash flows of a new product that come at the expense of a firm's existing cash flow.

Explanation:

Erosion in accounting explains the activities that impacts negatively on a company's asset or funds.

When erosion occurs and asset is lost, the net worth of the company reduces.

Erosion could reduce profits, sales, or tangible assets, such as manufacturing equipment and sometimes all of a sudden due to technological innovation.

When the cash flows of a new product come at the expense of a firm's existing cash flow, erosion will occur.