Question

“A business organization requires both long term and short term capital which can

either be on the form of ownership capital and borrowed capital.” Comment upon

the statement with hypothetical example.

Answer 1

Capital can be short-term capital, implying that it is in a frame that can be procured or re-obtained in a brief timeframe when required in real money. It, as a rule, exists in the type of effortlessly liquidated like money and quick sale assets. The period in which these advances can be exchanged in under a year. Then again, capital can be long-term capital implying that they set aside a more drawn out opportunity to develop, most are utilized for future investments and projects.

Capital, including the previously mentioned types of capital, can either be proprietorship capital or borrowed capital. Proprietorship capital is any assets got by the partners, proprietors of the business or investors. Borrowed capital, then again, is one that has been procured on credit and is to be paid back.

Hypothetical situation:

A group of individuals intending to start up a business can contribute cash towards the capital. This would make up the ownership capital. When they get an advance from different sources, this will influence part of the borrowed capital. Any cash that they put into resources, for example, buildings makes up the long-term capital. The short-term capital, for this situation, would incorporate the cash they have kept in real money to run their everyday activities.