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

Owners capital just refers to the owner's stake in the business.While borrowed capital is funds acquired from an external source to start up or add a stock to any form of business organization. It might be differentiated according to the repayment period, for instance, short term and long terms.The primary reason why business organization will require both long term and short term capital is that:-Payment of long-term debt are done over a time; this will give an entrepreneur greater advantage of which will allow for expansion without direct revenue obligation while Short term capital acts as a reserve to fund expenses associated with the emergency.