Accounting - Sources of Finance (External)

Question 1

What are External Finances?

Answer 1

Refers to funds that are sourced from outside the business; that is, from liabilities

Question 2

What are 4 examples of External Finance?

Answer 2

Trade Credit, Bank Overdraft, Term Loan, Leasing

Question 3

What is trade credit?

Answer 3

Refers to the facility offered by suppliers that allow its customers to purchase goods and services immediately, and then pay back at a later date

Question 4

Trade Credit is otherwise known as what?

Answer 4

Accounts Payable, the supplier becomes an accounts payable.

Question 5

What is a Bank Overdraft?

Answer 5

Is a facility provided by the bank that allows a business to withdraw funds greater than the current balance of its account.

Question 6

What is a Term Loan?

Answer 6

They are funds provided by a bank or other lender for specific purpose and repaid over time.

Question 7

What is an example of a term loan?

Answer 7

Mortage.

Question 8

What is meant by Leasing?

Answer 8

It is a form of Rental Agreement that allows a business to use and control an asset for a length of time in return for specific periodic payments. Useful for assets which need to be replaced frequently.