Accounting And Finance- Sources Of Finance

Question 1

Distinguish between internal and external sources of finance

Answer 1

Internal-Sale of Stock, Sale of Fixed Assets, Retained Earnings and Debt Collection
External-Loan from banks, Preference Shares, Debenture, Public Deposits,

Question 2

Distinguish between short and long term sources of finance

Answer 2

Short term- trade credit and short term loans

Long term-venture capital, government grants

Question 3

How does time affect the choice of finance for a business

Answer 3

If the business needs the finance quickly then it wouldn’t be appropriate to request a long term loan, the sale of an asset or debt would be more feasible

Question 4

How does legal structure affect the choice of finance for business

Answer 4

determine how much personal liability, if any, you would assume in the event that your business encountered financial difficulties

Question 5

How does quantitative factors affect the sources of finances

Answer 5

If the business has higher liabilities:assets or poor cash flow it isn’t a good idea to sell any assets or get any high interest loans

Question 6

How do qualitative factors affect the choice of finances for a business

Answer 6

If the business had poor brand reputation eg embezzlement then it my make it difficult to acquire loans, likewise if the business is poorly managed it may make it difficult to retain profit

Question 7

How do external factors affect choices of finance

Answer 7

New legislation my cause the business to spend more on asset up keep which reduces the amount of profit they could retain, or an economic crash would decease the likelihood of being able to acquire a loan