Accounting for Business: Analyzing External and Internal Resources

This report provides a comprehensive overview of financial accounting, emphasizing its importance in tracking, recording, and analyzing a company's monetary transactions. It details the golden rules of accounting and the significance of financial statements like the Cash Flow Statement, Income Statement, Balance Sheet, and Statement of Equity. The report further analyzes external and internal financial resources available to business entities, discussing various sources of long-term finance such as venture capital, debentures, bank loans, and hire purchase, along with their respective advantages and disadvantages. The analysis aims to provide insights into effective resource management and decision-making in financial accounting.

Accounting for
Business

INTRODUCTION
The several procedures and methods which are applied to track, record and analyze the monetary
transactions of the company are referred to as the financial accounting, relevant to perform
forecasting and prepare budgets (Fullana, O. and Ruiz, J., 2020). Accounting can be done by
individuals who yield the required skills and knowledge for preparing the financial statements,
however it is not necessary that they comply with the rules and regulations or may mold
individual task workings, as per their convenience. Henceforth, the administration of those tasks
are extremely important and mandatory, to assist the organization in circumventing malpractices
or frauds.
TASK
Financial Accounting and its Importance
The financial accounting is defined as the specific branch of accounting which lays emphasis and
describes steps followed for handling the transactions made during the course of business (Bell
and et.al, 2018). Such as recording, summarizing and reporting, where the transactions are
usually processed by following the three Golden Rules of Accounting, namely:
 Debit the Receiver, Credit the Giver.
 Debit what comes in, Credit what goes out.
 Debit all expenses and losses, Credit all incomes and gains.
By following the above mentioned rules and regulations, the accountants are capable of
proposing relevant decisions in relation to the financial position of the company and how they
can manage valuable resources effectively. These transactions are posted or documented in
financial statements, which includes the three major or primary documents, namely Cash Flow
Statement, Income Statement, Balance Sheet and Statement of Equity. Following are the
advantages of accounting:
 Maintaining the business transactions – The overall transactions which are identified
and recorded for an organization, need maintenance by those charged with governance
and henceforth, these financial statements are prepared, to not lose track of activities
performed in the organization.

 Comparison of Results – By analyzing the financial statements prepared the
management can compare the results and identify deviations, is any. This type of
comparison is often used for proposing adequate decisions, as to what methods and
procedures are beneficial towards the company, along with examination of loop holes
contained in them.
 Evidence in Legal Matters – The most important aspect of financial accounting is the
way it can be used as evidence against any kind of malpractices and fraudulent activities.
If the transactions are not recorded, then the organization will not possess any kind of
proof, for acting as a confirmation, that all the operations are fair and just, in every sense.
Analysis of the External and Internal resources available to business entities
External financial resources are identified as those items which are used by the management to
carry out their financial activities, which may be used raised by way of Debts or Loans. They
usually refer to the money which is available from outside resources and can be used for long or
short term objectives, if proper measures are taken, so as to not incur significant amount of losses
or to avoid unfavorable situations (Al-Htaybat and et.al, 2018). There may be several methods
through which the management of any company can raise the investment amount, such as loan
from family or friends, bank loans or overdrafts, angel investors and few others. All of the
following methods present risk and reward factors, which are highly volatile in nature, due to the
fact that the industry or the market will forever be dynamic and unpredictable in nature.
Internal financial resources referred to as, all of the monetary amount which comes from
within the business or is raised by the owners of the company. Generally, the internal way of
raising investments can be described as method which requires usage of owner’s capital, retained
earnings or selling assets of the company. All of the mentioned resources are called internal
financial resources for the organization and most of the times the owner’s capital or owner’s
personal savings are implemented to raise the capital. Moreover, the retained earnings of the
company can also be used for raising investments, which are defined as the surplus amount of
profits, deployed as investments which are later invested in various long or short term activities.

Sources of Long-term Finance
Venture Capital – The private stock or private type of investments, which are used by the
investors to provide capital to the newly set-up ventures, which are usually available for the
small or mid-sized companies.
Benefits:
 Through venture capital can borrow huge amount of money.
 It provides guidance, consultation and decision in business.
 Task capitalists provide an opportunity for expansion.
 It is useful in building networks.
 There is no responsibility to repay the money.
 Assignment capitalists are normally sincere.
 It can help with hiring and constructing a crew.
Disadvantages:
 Approaching a mission capitalist can be tedious.
 Mission capitalists normally take a more time to take a decision.
 Locating buyers can distract a commercial enterprise proprietor from their commercial
enterprise.
 Sizeable due diligence is needed.
Debentures – The method of raising the capital from external resources which are long term in
nature and is comparatively costlier to raise, then the equity or preference capital method. The
company can raise money from the outside public and henceforth becomes prone to risks,
Advantages:
 It is the best ways to obtain the money as compared to equity or preference shares.

 It cannot participate in the company voting rights.
 It can be matured when the company has more retained profits.
 It helps in tax saving because the interest charged on debenture treated as expenses and
showed in income and statement account.
Disadvantage:
 The interests have to paid at regular interval whether company earns profit or not.
 It gives less return, if the company wants more benefit then it is not suitable option.
 It put a burden on the company profit, if the profit of the company fluctuates then it
becomes risky to an organisation.
Bank Loan – The amount to be raised from the banking authorities or financial institutions are
often referred to as the bank loans, which requires the companies to follow all the rules and
regulations proposed by the legislation and relevant body corporates. They are simply referred to
as the cash amount borrowed from the banks for long term operations to be fulfilled.
Advantages;
 Huge amounts can be obtained.
 It is benefited for long-term investments.
 The Interest charges are lesser than for bank overdrafts and are set in advance.
Disadvantage:
 Collateral is wanted.
 The quantity borrowed must be repaid on the agreed date.
 It is not suitable for ongoing expenses.
 Loans will have an effect on a corporation’s gearing ratio.
 It is very lengthy process so that small organisation cannot be obtained money from bank
loan.

Hire Purchase – Lease buy for a company can be identified as the process followed by the
management for purchasing the assets on behalf of the company.
Benefits:
 The commercial enterprise profits use of the asset earlier than paying the asset’s value in
complete.
 The payment is made in affordable installments.
 Rent buy installments are taxable fees.
 At the stop of the bills possession of the asset is transferred to the business enterprise.
 Bills can be crafted from the asset’s usage and return of the asset.
Disadvantages:
 Possession remains with the lender until the ultimate price is made.
 The asset will cost the organisation greater than the original fee.
 If bills are not made on time the lender has the proper to repossess the asset.
 If the asset is required to get replaced due to breakdown or because it is out-dated
wherein case the payment may additionally still must be made and the asset replaced.
CONCLUSION
In the above report discussed about the external long term sources of finance. There are
various forms are available to obtain the money. The sole traders, partnership firms and company
consider various factors such as risk, interest rate and fluctuations rate when borrow the funds.

REFERENCES
Books and Journals
Al-Htaybat and et.al, 2018. Educating digital natives for the future: accounting educators’
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Bell and et.al, 2018. Current value accounting and the simple production case: Edbejo and other
companies in the taxi business. In Toward Greater Logic and Utility in Accounting (pp.
256-291). Routledge.
Fullana, O. and Ruiz, J., 2020. Accounting information systems in the blockchain era. Available
at SSRN 3517142.
Husein, U.M., 2018. Islam, communication and accounting. Journal of Islamic Accounting and
Business Research.
Morais, A.I., Fialho, A. and Dionísio, A., 2018. Is the accounting quality after the mandatory
adoption of IFRS a random walk? Evidence from Europe. Journal of Applied Accounting
Research.