Sources of Funds:
Some of the major sources of funds can be noted down as following:
1. The funds generated by the operation of funds in term of profits.
2. Borrowings made by the firm for a long term.
3. Issue of additional share capital or debentures for cash.
4. Sale of fixed assets, investment or intangible assets such as goodwill, patent, etc.
5. Non – operating incomes such as income from investment or profits from the sale of assets or investments.
6. Any other source e.g., subsidy received from the government, claims received from insurance company for the loss of a property etc.
Application of Funds:
The common applications of funds may be as follows:
1. Payment of dividends (interim and/or final) to the shareholders (both equity and preference).
2. Repayment of a long term loan during the year.
3. Purchase of new assets or investments or patent rights or trademarks or any other property which reduces the working capital of the firm.
4. The redemption of preference share capital or debentures during a year also utilities the funds.
5. If there is business loss to the firm then this tantamounts to decrease or use of funds.