Henry Fayol's Principle

Hello friends...
Today we are here to give you a brief description on a very important topic regarding accounting i.e.,CAPITAL

CAPITAL:

Capital can include cash or assets introduced into a business by the owner.
Generally speaking,the term CAPITAL refers to any financial resources or assets owed by the business that are useful in further development and generating income.

Capital means the amount invested by the owner in the business organization.It may be brought in the form of cash assets by the owner for the business organization.It is also called as Owner Equity,Proprieter's networth.It will always be equal to assets less external liabilities i.e.;
Capital=Asset-External liabilities

TYPES OF CAPITAL:-

There are basically two types of capitals-
a).Fixed Capital
b).Working Capital

FIXED CAPITAL:

In accounting,fixed capital is any kind of real,physical asset that is used in the production of a product but is not used up in the production.
Thus fixed capital is that portion of total  capital outlay that is invested in fixed assets(such as land improvements,buildings,vehicles,plant and equipment),that say in the business almost permanently-or at the very least,for more than one accounting period.

WORKING CAPITAL:

Working capital is a financial metric  which represents operating liquidity available to a business,organization or other entity,including governmental entities.
Along with fixed  assets such as plant and equipment,working capital is considered a part of operating capital.

Working capital is calculated as current assets  minus current liabilities.If current assets are less than current liabilities,an entity has a working capital deficiency,also called working capital deficit.

WORKING CAPITAL MANAGEMENT:

Working capital management refers to a company's managerial accounting strategy designed to monitor and utilize the two components of working capital,current assets and current liabilities,to ensure the most financially efficient operation of the company.

CONCEPTS OF WORKING CAPITAL:

Generally,there are two concepts of working capital.They are as follows-
a).Gross Working Capital
b).Net Working Capital

GROSS WORKING CAPITAL:

According to J.S. Mills-
"The sum of the current assets is the working capital of the business."
According to Mead,Malott & Field-
"Working capital means total of current assets."
According to this concept,Gross working capital refers to the firm's total investment in all the current assets of a business.

GROSS WORKING CAPITAL=TOTAL OF CURRENT ASSETS

Here the meaning of current assets,the assets which can be converted into cash easily or within one accounting period.

NET WORKING CAPITAL:

Net working capital is also defined as accounting concept,it means excess of current assets over current liabilities.
Net working capital supports the view that working capital is the difference of firm's current assets and current liabilities.

NET WORKING CAPITAL=CURRENT ASSETS-CURRENT LIABILITIES

Net working capital can be +ve or -ve whereas Gross working capital is always +ve.
When current assets are more than the current liabilities then working capital will be +ve and when current assets are less than current liabilities then working capital will be -ve.
At the end we can say that,both the WC (Working capital) are important but according to the suitability of GWC (gross working capital) is suitable for companies having separate  ownership or management while NWC (net working capital) is suitable for sale trader companies or partnership firms.