Long Term Sources of Finance for Unincorporated and Incorporated Businesses

This report examines the long term sources of finance for unincorporated and incorporated businesses, including equity, debt, debentures, retained income, term loans, operating capital loans, letter of credit, and venture capital. It discusses the similarities and differences of various sources of funds in the context of sole traders, partnerships, and companies. The report also covers external long term sources of finance for both unincorporated and incorporated businesses, such as bank loans, share capital, venture capital, and government grants.

Accounting for
business

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Unincorporated business(Sole traders and partnership firms)....................................................3
Incorporated business(Company)................................................................................................3
External long term sources of finance for both unincorporated business and incorporated
business.......................................................................................................................................4
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Accounting for business is the art of recording, classifying and summarising in a
significant manner and in terms of money, transactions and events. The function of accounting is
to provide quantitative information, primarily of finance nature, about economic entities, that is
needed to be useful in making economic decisions (Spilnyk and et.al, 2020). In this report,
includes the examination of the long term sources of finance for the unincorporated business and
incorporated business organisation.
TASK
Assets of finance for enterprise are equity, debt, debentures, retained income, term loans,
operating capital loans and letter of credit. These sources are used in the different conditions.
They are divided on the basis of time period, control and source of generation. On the basis of
sources of generation they are classified into the two parts such as long term sources of finance
and short term sources. Every source has different characteristics and classified according to the
business requirement. Long term sources of finance are used in the business to the long term
such as equity and debt whereas short term sources of finance are used in the business for the
short period such as working capital financing (Moss and Sandhu 2020).
Unincorporated business(Sole traders and partnership firms)
A commercial enterprises that does not have separate entity from its owner , it is known
as unincorporated business. It includes sole traders and partnership firms. They bear all the
responsibility of the business. If the business owner dies then transfer all the business to the other
person or close the business. They borrow the money to the business of different sources such as
friends, relatives and bank loan.
Incorporated business(Company)
The business that have separate legal form of its owner, it is known as incorporated
business. If the company suffers losses, it does not bear any looses of the company. The
company can borrow the money from different sources such as equity, debentures and venture
capital.

External long term sources of finance for both unincorporated business and incorporated
business
Bank Loan- Mortgage capital borrowed from a financial institution is subject to normal
interest payment. Interest may be variable or fixed. Variable interest costs provide less certainty
as the percentage interest rate varies with the authorities base price. Bank loan may be secured or
unsecured. A mortgage is a loan to buy property, secured in opposition to that property. The
lender can reclaim the assets used for security if the company cannot maintain up with payments.
 The partnership firm can borrow the money with the security (Husein, 2018).
 The loan interest are to paid at regular interval.
 Government authorities provides the loan to the new business with lower interest rates.
 Loan affects the gearing ratio of the business.
 The borrowers have not ownership rights.
Share capital- It is used by limited companies to raise the money. They state the
authorised capital in the MOA of the company. Private companies so not have any right to issue
the share to the public for the raising fund. It is the fixed capital because it does not necessary to
pay the money unless company goes into voluntary liquidation. It is necessary to pay dividend of
the shareholders at regular time period.
 It is easily raised for growth of the company.
 It remains in the company till long term.
 It is dependable to the joint stock entities.
 The company can issue more capital after amending the MOA
 It does not charge any assets of the company.
 It gives the opportunities to the shareholders to attend the general meetings of the
company and participate in the management of the company.
 The equity shareholders are the owner of the company (Almagtome, 2021).
Venture capital- It is the most popular sources for the companies. It is a high risky fund. The
capital is called the venture capital and the investors are called the capitalists. It is focused on the
emerging companies. It is obtained from the short period but investors improve the financial
condition in the long term.
 It does not offer the option for short period because returns from investing depend on the
success of an IPO.

 It is invested into the innovation projects that aims to disrupt the market.
 In starting the venture capital supports the production, development, marketing and
sales.
Government Grants- It is given by the local authorities to a beneficial projects. It is the
authorities benefits in the form of cash or in many kind (Tingey-Holyoak and Pisaniello 2019). If
an organisation or company does not fulfill the condition as prescribed by law then subsidiaries
are refundable by the entities.
 It is available at free of cost.
 It has not charged any interest because it is gift not a loan.
 After receiving the fund, it is necessary to submit the detailed reports of accounting for
how the money is disbursed.
The similarities and differences of various sources of funds in context of sole traders,
partnerships and company.
Basis Sole traders Partnerships Companies (private
and public)
Equity The sole traders
cannot obtained the
money through issue
of shares.
The partnership firms
are not issue the share
to arrange the fund.
Limited companies
have right to issue the
shares to obtain the
money.
Bank loan It is charged the higher
interest rate of sole
traders (Grinko and
et.al, 2020).
Firms can borrow the
money with the
necessary security.
Companies do not
prefer the bank loan
because there are
many regularities are
followed by the
companies
Venture capital It can obtain the
money from friends
and relatives.
It can obtain the
money from capital.
It can obtain the
money from private
equity.

CONCLUSION
In the above report to analysed the long term sources of finance for sole traders,
partnerships and company. Sources of finance play an important role in the company. Enterprises
raise the money to the growth of the business. There are many sources like as equity, debentures
venture capital , subsidiaries, money obtain from friends and relatives.

REFERENCES
Books and Journals
Spilnyk and et.al, 2020, September. Accounting and Financial Reporting System in the Digital
Economy. In 2020 10th International Conference on Advanced Computer Information
Technologies (ACIT) (pp. 581-584). IEEE.
Moss, S. and Sandhu, K., 2020. A Study of Factors Influencing Digital Accounting Software
Selection in Thailand. In Digital Transformation and Innovative Services for Business and
Learning (pp. 119-128). IGI Global.
Husein, U.M., 2018. Islam, communication and accounting. Journal of Islamic Accounting and
Business Research.
Almagtome, A.H., 2021. Artificial Intelligence Applications in Accounting and Financial
Reporting Systems: An International Perspective. In Handbook of Research on Applied AI
for International Business and Marketing Applications (pp. 540-558). IGI Global.
Tingey-Holyoak, J. and Pisaniello, J.D., 2019. Water accounting knowledge pathways. Pacific
Accounting Review.
Grinko and et.al, 2020. Development of an adaptive accounting system on the basis of quality
improvement of information resources. Academy of accounting and financial studies
journal, 24(5). pp.1-7.
Livne, G. and Markarian, G. eds., 2018. The Routledge companion to fair value in accounting.