Practical Business Accounting: Sources of Funds and Importance of Financing

This practical business accounting guide discusses the suitable sources of funds for various business organizations such as sole trader, partnership, limited company, and public limited company. It also emphasizes the importance of financing in operating a business firm. The guide provides insights on how to finance a business through personal capital, retained profit, sale of assets, loans from banks, venture capital funding, business loans, crowd funding, love money, angel investors, hire purchase, borrowing from banks or lending partners, use of reserve, and debentures. The guide also highlights the significance of financial planning and management of cash flow in a business firm.

PRACTICAL BUSINESS ACCOUNTING

TABLE OF CONTENT
MAIN BODY..................................................................................................................................2
Suitable sources of funds for various business organisation......................................................2
Importance of financing in operating a business firm................................................................3
CONCLUSION...............................................................................................................................4
REFERENCES................................................................................................................................5
1

INTRODUCTION
There are two types of activities but this study will show about the economic activity that is
business. Business is an economic activity which is being carried out by individual or group of
individual to earn livelihood, this study report in regard with practical business accounting will
discuss about the source of funding for various business form like sole trader, partnership,
limited company and public limited company and at last this study report will show the
importance of the finance in operating a business organisation (Serninger, Haji Warfaa Younes,
2019).
MAIN BODY
Suitable sources of funds for various business organisation
Sole Trader :- the sole trader is the one who solely runs the business and is responsible for the
loss and profit of the business, the main sources of funds of sole trader are as follow:-
 Personal capital : a sole trader can invest its own personal saving in the business.
 Retained profit : every time a profitable firm gives a positive net income, this is known
as retained income with (García-Vaquero Álvaro,Roibás Millán 2018).
 Sale of the asset : whenever a sole trader doesn't get finance from other source and have
left no finance then what the sole trader with can do is to sale the asset or property
registered on the name of the firm
 Loans from bank : the sole trader can go to bank or financial institution for the loan on
the business.
Partnership :- When two or more than two groups of individual come together for sale or
purchase of goods and services within one firm as an owner then it said to be as partnership, the
main source of funds of partnership are as follows:-
 Self funding or bootstrapping : finance through own saving in the business.
 Venture capital funding : visiting to the venture capital investor and asking them to
finance or invest in the company partnership
 Business loan : taking loan from angels or lending partners or government loan are said
as the best source of finance as they can get it at lower rate of interest (Sharma, 2021).
 Crowd funding : availing the funding through crowdfunding campaign
2

Limited :- This is a privately owned entity of a small business which limits the liability of the
owner shares and limiting the number of shareholder at 50. the main source of funding for a
private limited are as follows :-
 Love money : the owner of a limited can make their parents, family or relative to help
you in financing the firm (Shah, Liu, Shah, Shah, 2021.).
 Bank loans : the owner can take the loan from the government banks which provide
better benefit to the business and provides the loan at the small rate of interest.
 Angel investors : these are the ones who are very rich and lend their money to
individuals or small firms as a loan and take interest from them in return of loan
(Meucci,Parlapiano, 2021).
Public limited company :- Any of the company that has the limited liability and the company
that offers it's shares to the public of nation can be said as the public limited company under the
company act, 2013. The main source of funding for the public limited company are as follows:-
 Hire purchase : buying of goods and services and paying for them on a instalment basis
 Borrowing the money from the banks or lending partners .
 Use of reserve : each and every public limited company have their own reserve which
can be used when there is need of finance.
 Debentures : borrowing of money from the general public of nation for which the firm
pays the interest at a specific rate and under a specific time period.
Importance of financing in operating a business firm
Financing is necessary for the firm to complete or handle its day to day activities. Business
finance is regard as the art of controlling the money flowing in the firm, the role of finance is to
make sure whether the company have enough money to run or survive in the market, the
financing through various sources of financing like angels, loan, personal saving, reserve, love
money etc are very necessary for the firm to get finance from. These are the sources from which
the firm can get money when there is lack of fund in money. Finance not only increases the
goodwill of company but also helps in enhancing or changing the structure of working or
operation of company (Shukla,2022). The financing helps in smooth functioning of the firm
without running out of cash flow. The need of finance is in every department of the business
there is none department of the business firm that can be run without financing or cash flow.
Every small activity of business requires the money and money is taken from the sources of
3

funding, without financing the none of the firm can run for the long period of time, before
starting the firm it is very necessary to plan about the financing. For the completion of small as
well as long term goal the main thing needed before the human resource is financing as it creates
up a immense value to the firm. The financial planning includes the plan of finances that is
necessary to meet the long term goals of the firm. For the management of cash flow the
financing is very necessary not only lack of money but high finance of money can also cause the
problem to firm because of distribution problems that may occur between the departments
(Riehle, 2020).
CONCLUSION
This study report in relation to the practical business accounting have shown the various
necessary source of funding for a sole trader, partnership, private limited and public limited the
main and common sources of funding for the firms are angels, personal saving and loans.
company also this report has shown the importance of financing to the firm.
4

REFERENCES
Books and Journal
Shah, F., Liu, Y., Shah, Y. and Shah, F., 2021. Influence of shareholder equity on trade credit
demand: The study of non-financial firms in Pakistan.R-Economy. 7(1), pp.61-67.
Serninger, N., Haji Warfaa, A.I. and Younes, M., 2019. The fnding decision by high-tech start-
up firms: A multi-case study of Sweden.
García-Vaquero Álvaro, V. and Roibás Millán, I., 2018. Recent developments in nonbank
financing of Spanish firms. Economic bulletin/Banco de España, n. 4, 2018, 12 p.
Meucci, G. and Parlapiano, F., 2021. Corporate bond financing of Italian non-financial
firms.Bank of Italy Occasional Paper. (655).
Shukla, R., 2022, March. Sources of Finance and In-House R&D: A Study of Electronic Firms
in India. In Eurasian Business and Economics Perspectives: Proceedings of the 34th
Eurasia Business and Economics Society Conference(Vol. 21. p. 57). Springer Nature.
Sharma, J., 2021. VENTURE CAPITAL FUNDING IN E-COMMERCE FIRMS IN
INDIA.Journal of Commerce & Accounting Research. 10(4).
Riehle, D., 2020. Single-vendor open source firms.Computer. 53(4) pp.68-72.
5