Short Term Sources of Finance — Flashcards

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Short-term finance refers to funds required by a business for a period of up to one year. It is primarily used to meet working capital needs such as purchasing raw materials, paying wages, managing in…

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Working capital is the difference between current assets and current liabilities of a business. It represents the funds available for daily operations. Formula: Working Capital = Current Assets - Curr…

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Working capital ensures smooth business operations by allowing timely payment of expenses like wages and raw materials. It helps maintain solvency, build goodwill, avail cash discounts, and face unexp…

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Short-term capital serves several key purposes: (1) Meeting day-to-day expenses, (2) Maintaining stock of raw materials and finished goods, (3) Allowing credit sales by bridging the gap between produc…

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Fixed capital is invested in long-term assets like land, buildings, and machinery that are used over many years. Working capital, on the other hand, is used for short-term needs like inventory, wages,…

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Trade credit is the credit extended by suppliers to businesses for the purchase of goods or services, allowing payment at a later date — usually 30 to 90 days. It is a common and convenient source of …

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The two types of trade credit are: (1) Free trade credit — when payment is made within the agreed credit period without any interest, and (2) Paid trade credit — when payment is delayed beyond the due…

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Merits of trade credit include: (1) It is convenient and continuous, (2) Easily available if the buyer has good creditworthiness, (3) Helps promote sales, (4) Allows increase in inventory without imme…