External short-term finance sources for limited companies

Steps:

• Identify external sources: Funds from outside the company, not generated internally.
• Classify short-term: Typically under 1 year, like overdrafts or trade credit.
• Evaluate options: Match against common examples (e.g., 1: bank overdraft, 4: trade payables).
• Select pair: Choose the combination that fits both criteria.

Why B is correct:

• Bank overdraft (1) and trade payables (4) are external, short-term liabilities from lenders/suppliers, per accounting standards like IAS 7.

Why the others are wrong:

• A: 2 (e.g., commercial paper) may be medium-term; not both short/external.
• C: 3 (e.g., factoring) is short but often internal if company-owned; 2 mismatched.
• D: 3 and 4 both short but 3 can be internal arrangement.

Not enough information on exact sources 1-4 for full certainty.

Final answer: B