Which of the items constitute internal sources of financing for companies?

i. personal savings. ii. retained earnings iii. accrued taxes. 

A. i and ii
B. i and iii
C. ii and iii
D. i, ii and iii

Correct Answer:

Option A – i and ii

Explanation

Internal sources of finance are ways to use the assets you have to run your business rather than taking out loans or bringing in investors. Instead of borrowing from investors and bankers, your business has the option of using its own money to finance its operations. This approach can save money on interest payments and free your company from being accountable to outside parties. However, it can limit expansion options if you don’t have enough cash available to proceed with your plans. the following are some sources of internal funding;

Retained Profits: The term “retained profit” often refers to large companies with shareholders and stock, who decide to recycle profit as working capital rather than paying it out as dividends.

Sales os assets: If your business has equipment lying around that you don’t use, you can raise working capital by selling these items and then funneling the proceeds back into your business as working capital.

Reducing working capital : Reducing working capital is a strategy based on managing your available money more closely. If you can negotiate shorter billing times with your clients and longer payment terms with your suppliers, you’ll receive funds faster and pay them out more slowly, leaving you with more money for day-to-day operations.