Unit 4: Capital sourcing and computer applications
Basic Accounting notes · PTU syllabus (BSIT405/BSBC305)
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Unit summary
Companies need money for both day-to-day operations and long-term growth, and computers have transformed accounting. This unit covers the sources of raising working capital and long-term capital in corporate undertakings, and the application of computers in accounting.
After this unit you can
- Identify sources of working capital
- Identify sources of long-term capital
- Explain computerised accounting systems
- Describe accounting software and its features
PTU syllabus topics
Sources of raising working capital and long-term capital in corporate undertakings, application of computers in accounting
Purpose
Fixed assets, expansion
Day-to-day operations
Examples
Shares, debentures, term loans, retained earnings
Trade credit, bank overdraft, cash credit
Period
Over 5 years
Under 1 year
Topic 1
Working capital
- Gross working capital: total current assets; net working capital: current assets − current liabilities. It funds stock, debtors and daily expenses.
Topic 2
Sources of working capital
- Trade credit
- Credit allowed by suppliers
- Bank overdraft and cash credit
- Borrow up to a limit against stock or debtors
- Bills discounting
- Bank pays the bill amount before maturity, less a discount
- Factoring
- Selling debtors to a factor for immediate cash
- Commercial paper
- Unsecured short-term notes of large companies
- Public deposits and customer advances
- Deposits from public; advances from customers
- Accrued expenses
- Wages and taxes payable later
Topic 3
Sources of long-term capital
| Long-term sources | Short-term sources |
|---|---|
| Equity shares | Trade credit |
| Preference shares | Bank overdraft and cash credit |
| Debentures and bonds | Commercial paper |
| Term loans from banks and institutions | Bills discounting and factoring |
| Retained earnings | Customer advances |
| Venture capital, lease finance | Short-term loans |
Equity shares
Dividend if declared; capital gains
Owners bear the highest risk; voting rights
Preference shares
Fixed dividend paid before equity
Limited voting; priority on winding up
Debentures and bonds
Fixed interest, paid even in losses
Creditors; no voting; may be secured
Retained earnings
No explicit cost
No dilution of control
- Other long-term sources: term loans from banks and financial institutions (SIDBI), venture capital and private equity, leasing, external commercial borrowings, and issues through IPOs, rights issues and private placements.
Topic 4
Application of computers in accounting
Computerised accounting records transactions once; the software automatically posts to ledgers and produces trial balances and final accounts.
Speed
Slow
Fast
Accuracy
Prone to arithmetic errors
Automatic calculations
Reports
Prepared by hand
Instant, many formats
Storage
Bulky books
Digital, with backups
Popular software: Tally Prime (widely used in India, GST-ready), Busy, Zoho Books, QuickBooks, SAP and Marg. Features: vouchers, ledgers, inventory, GST returns, payroll, bank reconciliation and MIS reports.
- 1Create company and ledgers
Groups, ledgers, GST details
- 2Enter vouchers
Payment, receipt, sales, purchase, journal, contra
- 3Automatic posting
Ledgers, cash book and stock updated
- 4Reports
Trial balance, P&L, balance sheet, GST returns
- 5Backup and security
Passwords, user rights, audit trail
- Audit trail (edit log): under the Companies Act, companies' accounting software must record every change to books with date and time — the audit trail cannot be disabled.
- Trends: cloud accounting, e-invoicing under GST, bank-feed reconciliation, ERP systems (SAP, Oracle) and AI tools that read invoices.
Key terms
- Working capital
- Funds needed for day-to-day operations
- Factoring
- Selling receivables to obtain cash
- Debenture
- Long-term debt instrument with fixed interest
- Retained earnings
- Profits kept in the business
- Audit trail
- Record of all changes made to accounting data
Quick revision
- Gross and net working capital.
- Short-term sources: trade credit, overdraft, cash credit, bills discounting, factoring, commercial paper.
- Long-term sources: equity, preference, debentures, retained earnings, term loans, venture capital, leasing.
- Manual vs computerised accounting.
- Tally Prime, Zoho Books; vouchers, reports, GST; audit trail.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Define net working capital.
- Q2.What is factoring?
- Q3.Distinguish equity and preference shares.
- Q4.What are retained earnings?
- Q5.State two advantages of computerised accounting.
- Q6.What is an audit trail?
Long-answer questions
- Q1.Explain the sources of working capital.
- Q2.Explain the sources of long-term capital for a company.
- Q3.Compare manual and computerised accounting.
- Q4.Explain the application of computers in accounting.
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