Differentiate between: |
(a) Fixed Capital and Working Capital |
(b) Short Term Finance and Long Term finance |
(c) Owner's Funds and Borrowed Funds |
(d) Internal Sources and External Sources |
Answer:
Ans. (a) Fixed Capital and Working Capital
(b) Short Term Finance and Long Term Finance (c) Owner's Funds and Borrowed Funds
Basis
Fixed Capital
Working Capital
Meaning
In order to start business, funds are required to purchase fixed assets like land and building, plant and machinery, furniture and fixtures etc. It is called fixed capital.
A business needs funds for its day to day operations. This is known as working capital of an enterprise.
Use
It is used to create basic and fundamental structure of business,
It is used for holding current assets such as stock of material, cash in hand, bills receivable and for meeting current expenses like salaries, electricity bill, rent etc.
(d) Internal and External Sources
Basis
Owners Funds
Borrowed Funds
Meaning
Owner's funds means funds that are provided by the owners of an enterprise.
Borrowed funds refer to the funds raised through loans and borrowings.
Duration
Owner's funds remain in business for a longer duration.
It is in business for shorter duration.
Refund
It is not required to be refunded.
It is required to be refunded.
Example
Equity shares, retained earnings.
Debentures, trade credit, loans, public deposits etc.
Basis
Internal Sources
External Sources
Meaning
Internal sources of funds are those that are generated within the business.
External sources of funds are those sources which lie outside an organization.
Duration
Internal sources remain in business for a longer duration.
It is in business for shorter duration.
Example
Equity shares, retained earnings
Debentures, Trade credit loans, public deposits etc.
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