Question

Spontaneously generated funds are generally defined as follows: a. Funds that a firm must raise externally through borrowing or by selling new common or preferred stock. b. Assets required per dollar of sales. c. A forecasting approach in which the forecasted percentage of sales for each item is held constant. d. The amount of cash raised in a given year minus the amount of cash needed to finance the additional capital expenditures and working capital needed to support the firm's growth. e. Funds that arise out of normal business operations from its suppliers, employees, and the government, and they include spontaneous increases in accounts payable and accruals.

Answer 1

Answer: e. Funds that arise out of normal business operations from its suppliers, employees, and the government, and they include spontaneous increases in accounts payable and accruals.

Explanation:

Spontaneously Generated Funds are a result of an increase in sales. This then in turn leads to an increase in Accounts Payables, wages to employees and taxes to the Government. For example, if sales rise then the company will buy more from.its suppliers leading to a higher Payables balance.

It is used in the calculation of Additional Funds Needed where it along with an increase in Retained earnings is subtracted from the required increase in sales.