Assignment on Accounting (PDF)

ACCOUNTING

INTRODUCTION
In order to set up any business, the primary requirement is funds to carry out the business
activities. A company cannot survive in the long run if it does not have adequate funds to
finance its fixed assets and working capital requirements. These funds are raised through various
sources of finance which has different costs associated with it. The financial manager should
look upon all the quantitative and qualitative factors and then form the capital structure of the
company. This report will let us know about the various sources of finance and the advantages as
well as disadvantages associated with it.

SOURCES OF FUNDS
The most important requirement to execute a business plan are funds. A business entity has to
raise funds from various sources of finance in order to run its business efficiently and smoothly.
There are various sources of finance having advantages and disadvantages of its own. Few of
them has been discussed below:
1. Self financing – In this source of finance, the investor invest his own funds. The biggest
advantage of investing your own funds is that you have full control over the funds that
you have invested. Also, there is no risk of withdrawal by the lenders and also there lies
no burden of repayment. The ownership of the business lies fully in the hands of the
owner which means that he does not have to share his profits with anyone else. This
source of finance also helps to avoid excessive and insignificant expenditures. It helps to
prioritize expense [ CITATION Atk12 \l 1033 ].
However, there are some disadvantages of using own funds also. If an individual uses his
own funds in order to finance his business then it might put a stain on the owner’s
personal life and family [ CITATION Ber09 \l 1033 ]. Business is full of uncertainties so if
the business fails then it might cause a huge loss of personal possessions. The owner will
either enjoy 100% profits or will have to bear 100% losses.
2. Bank Loan- Bank loan is raised by business entities for a fixed period of time with a
repayment schedule that has been mutually agreed upon on. The amount of repayment
that has to be made depends either on the size or duration of the loan along with the rate
of interest. There are various different types of loans that are usually taken by the
companies such as working capital loan foe meeting expenses in emergency situations,
fixed asset loan, factoring loans which depends on the debtors of the company and also
hire purchase loans [ CITATION Boy13 \l 1033 ].
There are certain advantages as well as disadvantages in raising funds through bank
loans. The advantages include there is no risk of repayment of loan before the specified
time, there is no requirement to pay a part of profits to the loan provider if you are paying
interest, the interest rates are fixed at the beginning of the period and so there is no