Adequate capital amount is requiring for the small or big organization to establish the business or to develop their business in their daily activities. The capital amount should be separated in two parts that is fixed capital and the other one is working capital. Long period investment is the fixed capital. It should be for the purpose of the fixed assets like the land or buildings or machineries or the furniture’s. These are the entire long term one so this will be called as the long term capital. Then another one is for the capital which could be invested for the current one. This for the purpose of regular work to do the daily work in the business. It will also call as circulating capital or revolving capital or short term capital. This short term capital is used for the daily business activities like for the purchase of the raw materials and also for the payment of the wages then for the rent payment and other expenses in daily or in month wise. This will keep in the form of debtors or raw material in inventory or debtors or in the stock of the finished goods or in the form of the receivable bills.
Concept of circulating capita:
When we consider about the capital there could be of the gross one and also the net one. In the gross one there could be of the current assets and also represent the total fund they could be inform in the current assets. These will be converted into the cash in the short time periods only. This will also include the cash which could be in the form of the cashes should be in the cash hand or in the bank or in the inventory or it will paid in the form of previously or in the bills could be receivable etc. When we go the next one that is net concept is its current liabilities only. That is the main difference between the current assets and also the liabilities in the current which is called the net concept. There are two classification in these capital of working. That is permanent one and also the temporary one. The permanent working one is represent the assets in the current which will be required to continuing the basis of throughout the year. There could be the fixed amount will needed for the business to run. So there could be a need of the every organization in the business field could maintain the minimum assets for maintain and also for the circulating. That minimum level is called as the permanent one. This will also called as the minimum stock or the bank balance. This is the long term sources of funds. While we go for the temporary working capital which represents the additional assets need for the operation of that year. It is also known as the extra capital to change the production and also in the sales activities. So have the temporary capital for the short term sources of funds and develop your business to be succeeding one.