Spontaneously generated fund
Spontaneously generated fund is a fund generated if a liability account increases spontaneously (automatically) as sales increase. An increase in a liability account is a source of funds, thus funds have been generated. Two examples of spontaneous liability accounts are accounts payable and accrued wages. Notes payable, although a current liability account, is not a spontaneous source of funds because an increase in notes payable requires a specific action between the firm and a creditor.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Spontaneously generated funds. Funds generated if a liability account increases spontaneously (automatically) as sales increase. An increase in a liability account is a source of funds, thus funds have been generated. Two examples of spontaneous liability accounts are accounts payable and accrued wages. Notes payable, although a current liability account, is not a spontaneous source of funds because an increase in notes payable requires a specific action between the firm and a creditor.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
