Commerce Exam > Commerce Questions > Funds raised through loans and borrowings are...
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Funds raised through loans and borrowings are ________
- a)(e) Owners Equity
- b)Share Capital
- c)Borrowed funds
- d)None of these
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
Funds raised through loans and borrowings are ________a)(e) Owners Equ...
Borrowed funds refer to the funds raised with the help of loans or borrowings. This is the most common type of source of funds and is used the majority of the time. The sources for raising borrowed funds include loans from commercial banks, loans from financial institutions, issue of debentures, public deposits and trade credit.
Most Upvoted Answer
Funds raised through loans and borrowings are ________a)(e) Owners Equ...
Explanation:
Source of Funds:
- Funds raised through loans and borrowings are considered as borrowed funds.
Definition of Borrowed Funds:
- Borrowed funds refer to the funds raised by a company through loans or other forms of borrowing.
Characteristics of Borrowed Funds:
- Borrowed funds are liabilities on the company's balance sheet.
- They come with an obligation to repay the principal amount along with interest.
- Borrowed funds are external sources of capital used to finance business operations or investment activities.
Impact on Financial Statements:
- The funds raised through loans and borrowings are reflected on the liabilities side of the balance sheet.
- They increase the company's debt levels and interest obligations.
Importance of Borrowed Funds:
- Borrowed funds provide companies with additional capital to expand operations, invest in projects, or manage cash flow.
- They can be a cost-effective way to raise capital compared to issuing new shares or equity.
Risk Associated with Borrowed Funds:
- Excessive reliance on borrowed funds can lead to financial instability and increase the company's risk of default.
- Failure to repay borrowed funds can negatively impact the company's credit rating and financial health.
In conclusion, funds raised through loans and borrowings are classified as borrowed funds, which are essential sources of capital for many companies. It is crucial for businesses to manage borrowed funds effectively to ensure financial stability and growth.
Source of Funds:
- Funds raised through loans and borrowings are considered as borrowed funds.
Definition of Borrowed Funds:
- Borrowed funds refer to the funds raised by a company through loans or other forms of borrowing.
Characteristics of Borrowed Funds:
- Borrowed funds are liabilities on the company's balance sheet.
- They come with an obligation to repay the principal amount along with interest.
- Borrowed funds are external sources of capital used to finance business operations or investment activities.
Impact on Financial Statements:
- The funds raised through loans and borrowings are reflected on the liabilities side of the balance sheet.
- They increase the company's debt levels and interest obligations.
Importance of Borrowed Funds:
- Borrowed funds provide companies with additional capital to expand operations, invest in projects, or manage cash flow.
- They can be a cost-effective way to raise capital compared to issuing new shares or equity.
Risk Associated with Borrowed Funds:
- Excessive reliance on borrowed funds can lead to financial instability and increase the company's risk of default.
- Failure to repay borrowed funds can negatively impact the company's credit rating and financial health.
In conclusion, funds raised through loans and borrowings are classified as borrowed funds, which are essential sources of capital for many companies. It is crucial for businesses to manage borrowed funds effectively to ensure financial stability and growth.
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