Finance, Accounting and Resource Mobilisation
Domain focus
This section covers Finance, Accounting and Resource Mobilisation. The exam tests sources of finance, working capital, basic accounting records, and the difference between profit and cash.
Core rules and concepts
- Sources are internal (savings, retained earnings) and external (loans, equity, grants/subsidies). Short-term finance funds working capital; long-term finance funds assets.
- Indian options include bank loans, MUDRA (Shishu, Kishor, Tarun), PMEGP, CGTMSE-backed loans, supplier credit and equity.
- The accounting equation is Assets = Liabilities + Capital. Keep a cash book, stock record and receivables/payables record.
- Working capital = current assets − current liabilities. Profit is not cash because credit sales and stock absorb cash.
Worked example
A trader holds ₹80,000 stock, ₹30,000 receivables and ₹20,000 cash; payables are ₹40,000. Current assets = ₹1,30,000. Working capital = ₹1,30,000 − ₹40,000 = ₹90,000. If the bank sanctions only ₹60,000, the owner must fund ₹30,000 or shorten customer credit. Reasoning: working capital is a funding gap, not a profit figure.
Traps that cost marks
Do not treat profit as cash. Do not mix capital expenditure with revenue expenditure. Do not ignore working capital. Do not use long-term borrowing for daily needs.