Sources of Business Capital What are the Sources of Business Capital?
Sources of Business Capital Debt Loan from Friends/Family Loan from Banks Bonds Equity Personal savings Investment by Friends/Family Investors 4
Uses of Business Resources What are Uses of Business Resources?
Why Do Businesses Perform the Functions? To produce and market goods and services (resulting in revenues)
Key Terms Assets The economic resources owned by an entity; entailing probable future benefits to the entity Example: Land, Building, Machinery Owners' equity It represents the collective interest or position of the entity's owners Debt/Outsider’s Liabilities It represent the obligation to the outsiders. E.g.. Loan, any unpaid expense Assets = Equity + Debt Assets= Liabilities
How is the Revenue a Business Generates Used? Profits are retained or distributed
Key terms Assets: the resources a business owns – Fixed Assets – those lasting more than one year and not used up in production – equipment, machinery, buildings, etc. Current Assets – assets used up during production and which will realise cash within a year – debtors, raw materials, stock, etc.
Key terms Liabilities: The financial obligations of a business – what a business owes Loans, shareholders funds, creditors, tax liability, interest owing Current liabilities – those obligations the business has to meet within a year
Key terms Expenses The costs incurred in producing revenues Revenue Value of goods /services sold by the organization
Profits Profits (or earnings or income) are the excess of revenues over expenses.
13 Equity Shares–Features Claim on Income Right to Control Voting Rights Limited Liability Dividend Source of Permanent capital
14 Term Loans–Features Maturity Direct Negotiations Security Repayment Schedule Interest and Principle need to paid back
Exercise -I Jensen Publishing Company operates newspapers in a number of small communities. Determine whether each of the following is an asset, a liability, a revenue, or an expense from Jensen's viewpoint. Give reasons too. a. A loan that is owed to the bank b. The cost of paper used in printing c. Monthly rental charges paid to a landlord d. Receipts collected from subscribers e Machinery owned by the company and used in the business f. Amounts owed to suppliers of ink