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A Basic Guide to Finance and Accounting

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Submitted By joeyb97
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A Basic guide to finance and accounting
This article will explain the importance of finance and accounting in a start-up business and also demonstrate the means that business’ can source money internally and externally. The start-up idea I will be relating this too is a car dealership in Yorkshire Mikes wheels.
Internal finance is money that can be sourced from inside the business. The business in question is a small start-up business so the sources of finance are limited in terms of selling assets to free up cash; the premises are fixed assets as they are vital to the business. The cars are current assets as it is easier to turn them into cash therefore due to the nature Mikes Wheels selling cars is the objective. Profits retained from start-up businesses are usually minimal, as an owner personal savings and input are the main internal source unless a bank loan is secured.
An external source of finance is the phrase used to describe funds acquired outside the business, usually used in contrast to internal sources of finance the finance is acquired from a party separate to the business e.g
a) Owners who invest money in the business over a long period of time. The owner of Mikes Wheels will find himself needing to inject money into the business for a couple of years as Mikes business grows.
b) Loans from a bank or from family and friends.
c) Debentures are loans made to a company.
d) A mortgage, which is a special type of loan for buying property where monthly payments are spread over a number of years.
e) Hire purchase or leasing, where monthly payments are made for use of equipment such as a car. Leased equipment is rented and not owned by Mike. Hired equipment is owned by Mike after the final payment.
f) Grants from charities or the government to help businesses get started, especially in areas of high unemployment

Some of the basic accounting terms…...

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