Sources of Finance - Accounting - Chpt 15

Short Term Finance

Finance available for a period of up to 1 year

Why Use Short Term Finances? (Uses)

• Buying stock

• Paying off supplies (creditors)

• Paying expenses e.g. wages

Bank Overdraft

Where a business is given permission by the bank to withdraw more money than what is in their account.

Creditors

Buying goods now and paying later at an agreed time

Expenses Due/Accrued

When the business has the use of certain expenses for up to two months

Medium Term Finance

Finance available for a period of 1-5 years.

Why Use Medium Term Finances? (Uses)

Used to pay for items that will last a few years e.g. vehicles, equipment or machinery.

Leasing 

When the business pays for the use of a certain good for an agreed period of time, but never owns the product

Medium-Term Loan

A loan taken out by a business by a financial institution e.g. a bank

Hire Purchase (HP)

Used to purchase a good from a retailer through a HP company. 

The HP company pays the full cost to the retailer and the retailer and the consumer repays the HP company in instalments over an agreed time

Long Term Finance 

Finance available for more than 5 years.

Why Use Long Term Finances? (Uses)

• Buying land and premises

• Expanding into global markets

Shares

Capital made up of shares purchased by shareholders

Retained profit

Profits kept from previous year

Aka reserves 

Debentures

• Long-term loan

• Fixed rate of interest

• Collateral - security in case you can’t repay e.g. deeds of the premises