Q.Distinguish between Long-term Sources and Short-term Sources of finance, with examples.

Matching the period of a source to the period of the need is the central lesson of this AP Intermediate Commerce chapter.

Sources of finance are classified by period into long-term, medium-term and short-term sources, and this distinction guides how a firm should actually finance its different needs.

Long-term sources are funds required for a period beyond about five years, typically to acquire fixed assets such as land, building and machinery, or to fund a permanent expansion of the business. Examples include equity share capital, preference share capital, retained earnings, debentures and long-term loans from financial institutions. These sources are matched to fixed capital needs because the assets they finance stay in the business for years and are recovered only gradually. …