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Financing the Short Term Obligations of The Business
Finance & Accounting
Pages 5 (1255 words)
Introduction to Accounts: Financing the Short-term Obligations of the Business Name Class Professor Date Introduction to Accounts: Financing the Short-term Obligations of the Business I. Source of finances for meeting short term obligations Sourcing of funds either to start up a business, to expand its operation or to settle its obligation is not limited to capital paid up by its owners.
b. Retained earnings Retained earnings are profits that have been retained within the business for use in the operation of the business instead of being paid out as dividends to its shareholders. One of the operational uses of profits retained in the business is meeting the business short-term obligations. c. Capital Market Sourcing funds through the capital market simply meant getting additional funds through the issuance of new shares of stocks. If a company is unquoted, it simply has to obtain a Stock Exchange quotation to be able to issue shares of stocks to raise funds for the operation of the business (Macdonald and Cheng 1997). d. Financial leases Finance leases are lease agreements between the user of the leased asset (the lessee) and a provider of finance (the lessor) during the leased asset’s useful life (Macdonald and Cheng 1997). This arrangement is usually resorted to in obtaining fixed assets whereby a creditor agrees to act as the lessor by purchasing the asset and lease it to a company. The company will then use the asset and make regular payments to the creditor under the team of the lease (Macdonald and Cheng 1997). II. ...
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