Sources of Finance

what are the differences between capital expenditure and revenue expenditure?

Answer explanation

Capital expenditure is expenditure on purchasing non-current assets. It adds the value of the non-current assets. For example,buying a vehicle. Revenue expenditure is expenditure to run day-to-day operation of the business. For example, petrol cost.

What is the need for finance?

Answer explanation

1. allow to start up the business

- buy equipment

2. expansion of the business

-new branch in different city

3. continuously run the business operation

-pay salaries and wages

What are the differences between internal and external sources?

Answer explanation

Internal sources are funds that are available inside the business. It will be used up when the requirement of funding is limited. It not required collateral. External sources are funds that are sourced outside of the business. It will be required when the funding amount needed is huge. It may require collateral. It divides into short, medium, and long term.

What are the examples of internal finance?

Answer explanation

retained profits, working capital and sales of unused assets

What are the advantages of retained profits?

Answer explanation

-no repayment is needed

-no interest charge

What are the disadvantages of retained profits?

Answer explanation

-not available for new business/ business just started up

-profit retained in business may not be enough to be used

What is the meaning of working capital?

Answer explanation

reducing stockholding, delayng payments to creditors and encouraging debtors to pay on time

What are the advantages of working capital?

Answer explanation

-ensures business liquidity

-avoid interruptions in business dealing and operations

-improves the financial health of a business

What are the disadvantages of working capital?

Answer explanation

-only considered money factors

-non-situational

What are the advantages of sales of unused assets?

Answer explanation

-a good way to eliminate no longer used assets

-no repayment needed in future