Managing and accounting for financial resources Essay

Managing and accounting for financial resources - Essay Example There are two types of financial resources, namely short term financial resources and long term financial resources. 1. Bank advances - The most important source of financing is bank advances. The banks seek security either in the form of hypothecation or in the form of pledge for providing financial assistance, for providing: Revolving Credit - Revolving credit is a special alternative banking system designed for the farmers and other unorganized segments of the society. It is a running overdraft facility offered by the bank to the customers against their anticipated gross income compulsorily to be flowed into the Bank. Purchase/discount of Bills - A bill arises out of a trade transaction. The seller of goods draws the bill on the purchaser. On acceptance of the bill by the purchaser, the seller offers it to the bank for discount/ purchase. The bank will give finance to the seller and collect the amount from the purchaser on the due date. Bankers’ acceptance - A bankers acceptance (BA) is an order to pay a sum of money at a certain date. The BA is created by a banking customer and provided to a third party. The third party presents the BA to the bank. When the bank "accepts" the BA, it is assuming responsibility to make the specified payment. The bank will assume risk as well as provide finance only in direct form of financial assistance. Banks also provide indirect assistance in the form of ‘Letter of credit’. A letter of credit is an arrangement whereby the bank helps its customer to obtain credit from the customer’s suppliers. The bank, by opening a letter of credit, undertakes the responsibility to honour the obligation of its customer in case the customer fails to do so. 2. Supplier Credit term - This is a spontaneous source of finance which is extended by the supplier of goods or services without any specific negotiations. It is given on account of the