Q22-Ayushi is successfully running a bakery shop in her residential colony for the past many years. She has wisely invested funds in different areas in order to ensure the smooth running of her business. She owns the manufacturing unit, whereas the shop through which she operates is on rent. Recently, she took a loan from the bank to install air conditioners and create provision for sitting for the customers by extending the shop area. Although she buys the majority of the ingredients like flour, sugar, oil on 15 days credit from the local suppliers but sales are made only in cash. In the context of the above case :a. Identify the various external sources of finance that Ayushi has employed in her business. b. Distinguish between internal and external sources of funds (any one). 2 points
Answers
Ayushi is successfully running a bakery shop in her residential colony for the past many years. She has wisely invested funds in different areas
Following are the various sources of finance Ayushi has employed in her business:-
1) Leasing: Ayushi has leased the shop through which she operates. To lease an asset means to rent any asset or property that is owned by someone else.
2) Bank loan: Ayushi has taken a bank loan for air conditioners and to extend the shop area. Bank provides loans to emerging businesses.
3) Trade credit: She buys the majority of her ingredients from the local suppliers on a 15 days time period. A supplier allows trade credit to a buyer so that they can make payment at a later date.
Difference between the internal and external source of funds:
The main difference between the internal and external source of funds is that the internal source is generated from within the organization by cash flows but the external source of fund come from investors or institutions outside the organization.