Difference between Funding and Financing

Difference between Funding and Financing

By KAS   06:48   No comments:

Every company requires capital to run its business, and it is impossible to continue business without injection of money from time to time. There are different ways to collect money and keep the business running. Sometimes, companies borrow loan from banks and other financial institutions, or they can also take funds from investors in the form of share capital. Retained earnings are also utilized for this purpose. No matter what way they use for to collect money, it can be done either by funding or financing.

Generally, funding and financing are interchangeably used in the financial world, but there is a difference between these two terms. Funding is actually the money provided by companies or by a government sector for a specific purpose, whereas, financing is a process of receiving capital or money for business purpose, and it is usually provided by financial institutions, such as, banks or other lending agencies.

Funding

Funding is an amount of money provided by the organization or government on the basis of an agreement. It is usually free of charge. There may be certain contractual requirements in that agreement, but there are no requirements to pay back the capital. The most common facilitators that normally fulfill the funding needs of an organization are the donations made by governments, or philanthropists.

Financing

Financing, on the other hand, is an amount of capital or the sum of money provided to an organization with the expectation to repay, and organizations are liable to pay back the capital amount along with a certain percentage of interest. Therefore, the repayment also includes an interest component. It is usually provided by financial institutions like banks, or investors like venture capitalists, business angels, shareholders, etc.

Sources of Funds

As already discussed, governments and organizations are the main sources of funds. Let’s discuss these sources of funds in detail.

Government – The government funding is provided to different firms or establishments on the basis of a certain program or department from which it comes, and is basically distributed to private companies, communities, the general public, or other individuals for a specific purpose. The funding programs are available at every level of government.

Philanthropist – Funding received from philanthropists is mostly reserved to charitable organizations that are built for a specific cause. There are various sectors that provide funding for different reasons.

• Corporate Sector – A corporate sector offers funding to fulfill the monetary requirements of community organizations through their Corporate Social Responsibility (CSR) programs, which is a self-regulated program, and is integrated into a business model by different companies.

• Public Donation – This donation is usually provided by large community organizations for different purposes, such as, building schools or awareness programs.

Sources of Finance

Unlike funding, finance can be raised from a number of sources. For example, it can be raised from the community at large, venture capitalists, or banks. These sources are explained in detail below.

Banks – Lending institutions like banks give finance to individuals and organization for the ongoing running of business operations or other purposes. It is usually provided in the form of a loan, with the expectation to earn interest on that loan.

Venture Capital – Venture capital is another source of finance that is usually given to startup businesses. Although, it contains an investment risk, but due to the probability of earning above average future profit, venture capitalists invest in these businesses.

Subsidiaries of banks, wealthy investors, and a group of investment banks, small business investment agencies, and venture capital partnerships are some of the examples of venture capitalists. These institutions are usually rewarded in the form of royalties, profits, capital appreciation of the shares, or preferred stock.

Share Capital – A community, where a business or a particular project is set up, may also finance it with the expectation to earn profit on its investment. This investment is known as the share capital, and it is raised by issuing shares to the general public.

Funding and Financing – Interdependency

In a broader perspective, the discussion between funding and financing should be made clear for better understanding. A source of funding should always be there to support the financing activities. It is a very crucial point, because the availability of finance or capital doesn’t eliminate the need to have funds.

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Differences Between Audit and Review

Differences Between Audit and Review

By KAS   03:49   No comments:

Audit vs Review

Audit and review are two terms most commonly used in the accounting field. Both are actually types of financial statements. The third type is the compiled financial statement. But in this article, we will only be talking about audit and review. The CPAs (Certified Public Accountants) are the ones responsible for preparing or assisting in the process of making financial statements. The CPAs create the type of financial statement report depending on their mutual agreement among their clients. However, the type of report is determined based on the following factors: client need, creditors or investors’ needs, business size and complexity, and more.

What is an audited financial statement?

It could be said that the audited financial statement is the CPA’s highest level of assurance services because in this type of financial report, the CPA does all of the steps included in a compiled financial statement and reviewed statement. In other words, all works done in compilation and review are also done in an audit. But of course, the CPA also works with the verification and substantiation procedures concerning the amounts owed, inventories, minutes and contracts inspection, and others. The CPA also does his very best to understand the client’s entity system with regard to internal control. In ending the report, the CPA would state that the audit was done in accordance with the accepted auditing standards, as well as expressing his views fairly regarding the client’s financial status and operational results – also known as positive assurance.

What is a review financial statement?

On the other hand, a review financial statement prompts the CPA to do the inquiry and analytical procedures aside from the process being done in the compilation type of report. When completed, the CPA is tasked to state that a review has been done which is in accordance with the AICPA professional standards. The CPA would also state that the review has less scope than in an audit, and that he did not become aware of any material modifications, and etc. This is called limited assurance. A CPA prepares this type of financial report for his clients who have outside investors, bank loans, trade creditors, etc.

Their Differences

The main difference between an audit and review lies in their objectives. For an audit, the objective should be in accordance with the generally accepted auditing standards. On the other hand, the objective of a review should be in accordance with the standards for accounting and review services. An audit also requires the CPA to express a positive assurance while in a review, it requires the CPA to express a limited assurance. Also, when it comes to an audit, the CPA would state his opinion about the financial statement as a whole; whereas, a review does not since it doesn’t undertake the process of understanding the entity’s system of internal control. In other words, an audit is more in depth than a review, which only spans a lesser area.

Summary:

Audit and review are two terms most commonly used in the accounting field. Both are actually types of financial statements. The CPAs (Certified Public Accountants) are the ones responsible in preparing or assisting in the process of making financial statements.

The main difference between an audit and review lies in their objectives. For an audit, the objective should be in accordance with the generally accepted auditing standards. On the other hand, the objective of a review should be in accordance with the standards for accounting and review services.

An audit also requires the CPA to express a positive assurance while in a review, it requires the CPA to express a limited assurance.

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Difference Between Maestro and MasterCard

Difference Between Maestro and MasterCard

By KAS   07:52   No comments:

Maestro vs MasterCard

Maestro is the name given to a brand of MasterCard. They are registered trademarks of the same company. However, their usage is different. Maestro is used as a debit card and MasterCard is used as a credit card.

MasterCard

MasterCard consumer cards are credit cards.

A credit card is a form of plastic money through which the issuing agency of the credit card is in contract with the holder for using a certain amount of money for purchases. The amount of money which credit card holders can borrow depends on the contractual terms between the issuer and the card holder. In simple words, it is a loan issued to the credit card holder in plastic form. The consumer may use the credit card during purchases at shopping outlets or during online purchases through the Internet. Credit cards in general charge a higher rates of interest. These cards are used for short-term financing.

MasterCard is a credit card payment network that provides financial services to banks and their clients. This means that financial institutions which issue credit cards to their clients are actually supported by the MasterCard network.

Maestro

Maestro is a debit card service owned by MasterCard. The financial institutions which use this brand of debit cards are supported by Maestro payment networks. The customers can use this debit card during shopping through the Internet.

In a debit card, the purchased amount is debited to the consumer account directly.

A debit card is also a form of plastic money like the credit cards with different terms involved. The amount of money specified here is the money owned by the debit card holder through his current or savings bank account. Therefore, it not a loan, and the client can use his or her money for online purchases. The debit card issuer companies do not charge any interest on the money used by the client.

Maestro provides direct cash access from the bank account. It gives a PIN-based service which may only be accessed only through the web. It is an international network.

Summary:

1.MasterCard is a credit card whereas Maestro is a debit card.

2.Most financial transactions of MasterCard are confirmed by signature while the financial transactions of Maestro are confirmed by a Maestro PIN (Personal Identification Number).

3.The MasterCard processing of money takes place either manually or electronically whereas in the case of Maestro, the processing is through electronic terminals.

4.MasterCard charges higher rates of interest as compared to Maestro in financial dealings.

5.MasterCard allows payment in installments whereas Maestro is directly charged on the bank account.

6.The maximum limit of payments in MasterCard depends on various terms which are mutually settled between the issuer and the consumer. In Maestro, however, the maximum limit of payment is the amount present in the bank account.

7.The Maestro card may be used at an ATM whereas MasterCard cannot be used like this.

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