question_answer

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

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.

  (b) Short Term Finance and Long Term Finance (c) Owner's Funds and Borrowed Funds

Basis	Owner’s 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.

   (d) Internal and External Sources

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.