Ownership Basis

On the basis of ownership, the sources of funds are classified into owner's funds and borrowed funds.

Owner's funds

• These are funds provided by the owners of the enterprise — a sole trader, the partners, or the shareholders of a company.
• Besides the capital they contribute, it also includes profits reinvested (ploughed back) into the business.
• Owner's capital stays invested for a long duration and does not have to be refunded during the life of the business.
• Crucially, this capital is the basis on which owners get their right to control and manage the business.
• Two important routes to owner's funds are the issue of equity shares and retained earnings.

Borrowed funds

• These are funds raised through loans or borrowings.
• Sources include loans from commercial banks, loans from financial institutions, issue of debentures, public deposits, and trade credit.
• Such funds are provided for a specified period, on set terms and conditions, and must be repaid when that period ends. …