Question

To determine the amount of additional funds needed (AFN), you may subtract the expected increase in liabilities, which represents a source of funds, from the sum of the expected increases in retained earnings and assets, both of which are uses of funds.

Answer 1

False

Step-by-step explanation:

Additional funds needed is a finacing concept that an organisation uses when it is looking to expand its operations. It acts as a source of funding for expansion of for example, increased sales; for which more assets will be needed to meet that proposed increase.

It is therefore imperative that AFN is calculated to find out if or if not the organisation can get funds.

AFN is calculated by the simple formula:

AFN = Projected increase in assets – spontaneous increase in liabilities – any increase in retained earnings.

If after the above calculation, the value of the result is negative, then it means that the proposed expansion will yield income for the organisation and even that can be invested in something else.

I hope this is helpful.