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.

Related lectures

• Introduction to Financial Management.