Components of capital. Enterprise capital, its structure
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THE CONCEPT OF ORGANIZATIONAL CAPITAL
Definition of capital. An independent organization conducting production or other commercial activities must have a certain capital.
Capital represents a set of material assets and funds, financial investments and costs for the acquisition of rights and privileges necessary for entrepreneurial activity. The concept of “capital” is inextricably linked with the concept property. Under property is understood as a set of property rights and obligations belonging to a citizen or legal entity; a set of property rights only; thing or collection of things.
In accounting, capital is conventionally divided into active capital, i.e. operating (functioning) in the form of property and liabilities, and passive capital, reflecting the sources of formation and payment of operating capital. Despite the different accounting procedures for active and passive capital, they represent a unity and are different characteristics of the total capital that ensures the economic activity of the organization.
In the process of economic activity, there is a constant turnover of capital: capital successively changes the monetary form to the material form, which in turn changes, taking on various forms (in the form of products, goods, etc.) in accordance with the conditions of the production and commercial activities of the organization, and finally turns again into cash ready to start a new cycle.
Components of capital. Active capital consists of the property and liabilities of the organization, i.e. it includes what the given organization owns as a separate economic entity. The capital structure of an organization is formed in accordance with the characteristics of its financial and economic activities. Appendix 1 provides an example of the conditions for the economic and financial activities of the business entity OJSC Signal, which determine the procedure for forming the organization’s capital and its accounting.
Active capital– is the value of the organization’s property and liabilities, i.e. it includes what the given organization owns as a separate economic entity. The active capital of an organization is divided into fixed capital and working capital.
Fixed capital- this is a part of productive capital that fully and repeatedly takes part in the production of goods, transfers its value to a new product in parts, over a number of periods. In turn, fixed assets include fixed assets, intangible assets, capital investments, and long-term financial investments.
Working capital- this is the part of productive capital, the value of which is completely transferred to the produced goods and returned in cash after its sale, expressed as the excess of current assets over short-term liabilities, allowing the company to finance its permanent operations. Working capital has several components: tangible working capital, cash, short-term financial investments, funds in settlements.
Passive capital– these are the sources of property (active capital) of a separate organization and includes equity capital and borrowed capital (liabilities of the organization). In accounting, an organization's own capital is understood as the total amount of investments of founders, shareholders, participants, partners, the state, etc., and profits accumulated by the organization. The amount of capital is calculated as the difference between the assets and liabilities of the organization (borrowed capital). The organization's own capital consists of authorized capital, additional capital, reserve capital, retained earnings and targeted financing.
Currently, to characterize that part of the equity capital, the size of which is indicated in the constituent documents, the concepts of “authorized capital”, “share capital”, “authorized fund”, “mutual fund” are used.
Constituent documents– these are documents related to the creation of enterprises (legal entities), which are classified depending on the type of legal entity: either a constituent agreement; or the charter; or the memorandum of association and articles of association.
Constituent documents serve as the basis for the development of internal documents of the enterprise, which determine the organizational foundations of its financial activities (primarily the procedure for capital formation). An example of an order for an enterprise on the main directions of accounting policy is given in Appendix 2.
Authorized capital– the totality in monetary terms of contributions (shares, shares at par value) of the founders (participants) to the property of the organization upon its creation to ensure activities in the amounts determined by the constituent documents.
Reserve capital- this is capital created without fail by joint-stock companies and joint organizations, formed from profits and intended to cover unforeseen expenses and losses.
Share capital- the totality of contributions of participants in a general partnership or limited partnership made to the partnership for the implementation of its economic activities.
State and municipal unitary enterprises, instead of authorized or share capital, are formed in the prescribed manner authorized capital, which is understood as the totality of fixed and working capital allocated by the state or municipal authorities to state and municipal unitary enterprises.
Mutual fund– a set of share contributions (shares) of members of a production cooperative for joint business activities, as well as acquired and created in the process of activity. Share is a contribution in cash or other form paid by an individual or legal entity upon joining a business partnership or company, or other commercial organization.
Accounting for authorized and share capital, authorized and share funds is carried out on passive account 80 “Authorized capital”. The balance of this account must correspond to the size of the authorized capital (fund) recorded in the constituent documents of the organization.
After the state registration of an organization created with funds from the founders, the authorized capital in the amount provided for by the constituent documents is reflected on the credit of account 80 “Authorized capital” in correspondence with account 75 “Settlements with founders”. The actual receipt of deposits of the founders is carried out on the credit of account 75 to the debit of the accounts:
08 “Investments in non-current assets” - for the value of buildings, structures, machinery and equipment and other property related to fixed assets contributed to deposits;
08 “Investments in non-current assets” - for the value of intangible assets contributed to the deposit account - rights arising from copyright and other contracts for works of science, for computer programs, databases, from patents for inventions, etc. Received fixed assets and intangible assets debited from account 08 respectively to the following accounts:
01 “Fixed assets” and 04 “Intangible assets”;
production inventories (accounts 10, 11, etc.) - for the cost of raw materials, supplies and other material assets related to working capital contributed to the deposit account;
cash (accounts 50, 51, 52, etc.) – for the amount of cash in domestic and foreign currency contributed by participants;
other accounts - for the value of other property contributed to the deposit account.
Currency and currency valuables are valued at the official exchange rate of the Central Bank of the Russian Federation, valid at the time of payment of these valuables.
The assessment of currency and currency values and other property contributed as contributions to the authorized capital may differ from their assessment in the constituent documents. The difference arising in this case is written off to account 83 “Additional capital”.
Contributions to the authorized capital in foreign currency are reflected in accounting as follows:
1) for the amount of debt of the foreign founder:
Credit to account 80 “Authorized capital”;
2) on receipts from a foreign founder of funds:
Debit account 52 “Currency accounts”;
Credit to account 75 “Settlements with founders”;
3) for the amount of positive exchange rate difference:
Debit of account 75 “Settlements with founders”;
Credit to account 83 “Additional capital”;
4) for the amount of negative exchange rate difference:
Debit account 83 “Additional capital”;
Credit to account 75 “Settlements with founders”.
This procedure for writing off differences in prices and exchange rate valuation allows you not to change the share of the founders in the authorized capital specified in the constituent documents.
Property transferred for the use and management of an organization, the ownership of which remains with shareholders and investors, is assessed by the amount of rent for the transferred property, calculated for the entire period of use of this property in the organization, but not more than the period of its existence.
An increase or decrease in the authorized capital of an organization can be carried out only by decision of the founders after making appropriate changes to the organization’s charter and other constituent documents.
When increasing the authorized capital, account 80 “Authorized capital” is credited and the accounts for accounting for sources of increasing the authorized capital are debited:
83 “Additional capital” – for the amount of additional capital allocated to increase the authorized capital;
84 “Retained earnings (uncovered loss)” - for the amount of retained earnings used to increase the authorized capital;
75 “Settlements with founders” – for the amount of issue of additional shares;
Other accounts of sources of increase in authorized capital.
When the authorized capital is reduced, account 80 “Authorized capital” is debited and the accounts of those accounting objects to which the corresponding part of the authorized capital is written off are credited:
75 “Settlements with founders” - for the amount of deposits returned to the founders;
Typology of capital
trading capital Financial capital
Composition of the enterprise's fixed assets.
The means of labor and objects of labor on the balance sheet of the enterprise represent means of production. Fixed assets are the property of the enterprise.
Sources of property formation - monetary and material contributions from participants, income received from the implementation of construction and installation works, income from securities, bank loans, capital investments and subsidies from the budget.
Fixed production assets (FPF) are either directly involved in the process of creating construction products or create the conditions for implementation. OPF includes: machinery and equipment, power machines, vehicles, industrial buildings, construction machinery and mechanisms, generators, compressors, automobile and railway transport. OPF are divided into:
Active – working and power machines, vehicles, tools, equipment.
Passive – structures and buildings.
Active ones prevail over passive ones.
Own – on the balance sheet of the construction organization.
Attracted – taken for temporary use from another organization on a lease or provision of services basis.
Based on their use, OPFs are divided into:
Active - means of labor, they function during the construction process.
OPF can also include intangible assets: trademarks, patents, reputation, know-how.
Working capital: composition and sources of replenishment.
Composition of material working capital.
In production, objects of labor, which include raw materials, fuel, materials, act as working capital. Working capital participates in only one turnover, during which they are completely consumed and transfer their value completely to finished products. Working capital includes circulating production assets and circulation funds. TO working production assets include: production inventories (labor items to be launched into the production process), work in progress (unfinished construction products that are subject to further execution), deferred expenses (expenses that were incurred in a given period, but will be repaid in a future period).
Audit classification
§ Independent
§ State
§ Internal
By law:
§ Required- confirmation of the reliability of the reporting of an organization or individual entrepreneur, in cases established by the Federal Law “On Auditing Activities.
§ Initiative- audit conducted at the initiative of an economic entity
An audit may be mandatory or proactive. A mandatory audit is carried out in cases directly established by the legislation of the Russian Federation, an initiative audit is carried out by decision of an economic entity.
By frequency:
§ Initial - conducting an audit in an organization for the first time.
§ Repetitive
By purpose:
§ Financial
§ Operational
§ For compliance with legislation
§ Special (certification work)
§ Financial (accounting) reporting
§ Tax
§ Managerial
By direction:
§ Banking
§ Insurance organizations
§ Investment institutions, extra-budgetary funds
The company's capital: active and passive.
Typology of capital
Capital exists in both natural and value forms. Natural: investment goods, means of production that do not directly satisfy human needs. Distinguish trading capital – trade services for construction, industrial and agricultural production. The source of self-expansion is profit. Financial capital - money becomes a commodity. Self-expansion is carried out by banks appropriating the difference between the purchase and sale prices of money.
Capital formation is carried out at the expense of own funds and forms the basis of the enterprise's own capital. Also, construction enterprises can exist at the expense of borrowed funds, based on bank loans or loans from other organizations.
Industrial capital, in addition to being divided into fixed and circulating capital, depending on the circulation of various parts, is also divided into active and passive capital. The active part of industrial capital should be considered that part of it that is directly involved in the creation of new value, i.e. has direct material contact with the production process and depends on the degree of intensity of this production. The active part of capital should include equipment, raw materials, fuel, and energy. Indeed, these factors participate in the production process in direct material contact with each other. From this interaction a new product is born. The turnover of these factors is directly proportional to the intensity of the production process. The more intensive the production process, the more raw materials, fuel, and energy are consumed by the enterprise, the higher the turnover of working capital, i.e. the higher the intensity of the labor process, the greater the speed of circulation of working capital. The higher the production intensity, the faster the equipment wears out, the more raw materials are required for the normal operation of the production cycle, the more energy and fuel are consumed, because these factors interact materially with each other during the production process. And the more active production is, the more active this interaction is. Due to the above circumstances, the part of capital that constitutes certain factors of production known to us should be called the active part of productive capital. Buy Wienerberger porotherm.
Buildings and structures in the form of production workshops or warehouses, administrative buildings, fences, etc. participate in the production process in a slightly different way. They do not have direct material contact with future products, their interaction with other factors is very, very indirect, therefore the speed of circulation of part of the capital value, which is the cost of the above factors of production, does not depend on the intensity of the production process or depends only slightly on it. For example, if the building of a production workshop is designed for a twenty-year service life, then doubling the intensity of the production process inside this workshop will not reduce the service life of the building to ten years. Buildings and structures do not come into direct contact with other factors of production in the labor process; the circulation of their value depends so little on the intensity of the production process that this part of capital should be called the passive part of productive capital.
Of course, there are a number of examples where the intensity of the production process still affects the service life of buildings and structures and the turnover of their value, but all these examples are isolated and sporadic. Such cases are possible, for example, in the chemical industry. If enterprises in this industry use materials that are not very resistant to chemical influences for the construction of workshops and laboratories, then the service life of such structures will very much depend on the intensity of the production process. The same applies to industries where there is a very high level of vibration during the production process and this level is destructive. However, such examples do not reflect the general trend and general state of affairs.
So, summing up the peculiar results of this chapter, it should be noted and repeated that capital is divided into fixed and circulating capital according to the nature of the turnover of various parts of the capital value. The division of capital into active and passive is based on the difference in the roles of various parts of capital in the production of new products. Consider the following table:
Table 3. Typology of capital
Question. Define capital.
Answer. Any organization operating separately from others, conducting production or other commercial activities, must have a certain capital, representing a set of material assets and funds, financial investments and costs for the acquisition of rights and privileges necessary for the implementation of its economic activities.
In accounting, capital is conventionally divided into active capital, i.e. acting (functioning) in the form of property and liabilities, and passive capital, reflecting the sources of formation and payment of operating capital. Despite the different accounting procedures for active and passive capital, they represent a unity and are different characteristics of the total capital that ensures the economic activity of the organization.
Question. What is the circulation of capital?
Answer. In the process of economic activity, there is a constant turnover of capital: capital changes its monetary form to a material one, which again turns into cash. The circulation of capital is reflected in accounting. An example of such a circuit is reflected in table. 1.
Rice. 1. Circulation of capital
Table 1
CIRCULATION OF CAPITAL
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Current accounts (account No. 51) |
Settlements with suppliers and contractors (account No. 60) |
Goods (account No. 41) |
Profits and losses (account No. 99) |
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Starting position |
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1st position |
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Account balance |
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2nd position |
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Account balance |
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3rd position |
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Account balance |
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4th position |
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Account balance |
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* Previous income shown
The circulation of capital is carried out as if separately - separately for debit accounts and separately for credit accounts. This is clearly represented in the diagram, where debit connections are shown in bold and credit connections are shown in thin lines. The same thing happens in reality.
Question. What is active capital?
Answer. Active capital consists of the property and liabilities of the organization, i.e. it includes what the given organization owns as a separate economic entity. Active capital is the value of all assets of the organization.
In relation to the turnover rate, they distinguish durable property, which has been in the organization’s circulation for more than a year, and property, intended for current (one-time) use in the process of economic activity or organizations in circulation for no more than one year. A one-year period as a boundary separating the second type of property from immobilized property, i.e. intended for longer use, is consistent with the reporting period, which is taken to be a full calendar year from January 1 to December 31 inclusive. However, these dates may not coincide calendar-wise. The cost of bonds purchased in September with a maturity date of May 25 of the following year should be attributed to property in current circulation. If the maturity date were September 25 of the following year, we would have to classify them as non-current assets. Thus, the active capital of an enterprise is divided into fixed (long-term) capital and working (current) capital.
In turn, in fixed capital includes fixed assets, intangible assets, long-term financial investments.
Fixed assets – This is the value of the totality of movable and immovable property located in a given organization for a long time. Fixed assets leased with the right of subsequent purchase or at the end of the lease under the terms of the agreement become the property of the lessee, are accounted for in the same way as own fixed assets.
Fixed capital includes costs for unfinished capital investments in fixed assets and for the purchase of equipment not installed in the reporting period. These costs represent that part of the costs for the acquisition and construction of fixed assets that have not yet become fixed assets, cannot participate in the process of economic activity, and therefore should not be subject to depreciation. They are accounted for separately from fixed assets on separate accounting accounts: “Capital investments”, “Equipment for installation”. But these costs have already been withdrawn from working capital, the amount of working capital has decreased by their amount, therefore, they are classified as fixed capital.
Intangible assets – these are the long-term costs of an organization for the acquisition of the right to use land plots, natural resources, intellectual property, copyrights, acquisition of various licenses and other privileged rights. This takes into account the costs of brands, trademarks, "firm price" and other similar costs.
Rice. 2. Components of fixed and working capital
The cost of some types of intangible assets is also repaid through monthly depreciation charges, included in production and distribution costs. Thus, part of the value immobilized in intangible assets is returned to working capital in cash, ready for further use in the organization’s new capital turnover cycle.
Long-term financial investments include costs for equity participation in the authorized capital of other organizations, for the acquisition of shares and bonds on a long-term basis. Financial investments also include long-term loans issued to other organizations against debt obligations.
The costs of long-term financial investments are repaid in different ways, depending on their nature and type. For example, long-term loans are repaid within the terms established by the agreement. Shares and bonds can be sold at any time at the exchange rate to other organizations and the money spent can be fully returned to circulation.
Working capital has several components: tangible working capital, funds in current accounts, short-term financial investments, cash. Note that the elements of working capital are arranged in the diagram in order of increasing liquidity, or their ability to be converted into cash. The most difficult thing is to convert material resources into money; to do this, they need to be sold. Next come the funds in settlements that need to be collected from debtors, to return their money or valuables adequate to them. Financial investments turn into cash faster than other components of working capital.
TO material negotiable means include production inventories (purchased or extracted material resources intended for further processing in a given organization); finished products; goods. Intangible working capital also includes the organization's costs for creating a backlog of work in progress as a necessary condition for the technological cycle to continue production in future reporting periods. Work in progress is the most difficult part of working capital to sell.
Finished goods represent the actual costs of products ready for sale located in warehouses and other storage areas. Goods accumulate the costs of purchasing goods from other organizations for further resale or for completing products of their own production. Finished products and goods are the easiest to sell (liquid) part of material current assets, i.e. convertible into money or funds in settlements.
Funds in current settlements – these are the obligations of individuals and legal entities of the organization. With the exception of so-called bad debts, these are highly liquid funds. At the very least, they are converted into cash according to a predetermined payment schedule.
Financial investments – expenses of an organization for the acquisition of shares and bonds for a period of up to one year, short-term loans, including against bills of exchange, cash in time deposit accounts of banks, other financial investments invested to generate income in the form of interest, dividends or differences in the cost of securities upon their resale. Typically, short-term financial investments quickly turn into cash. They are even called “almost money”.
Cash – the amount of money on hand, in settlement, current and other bank accounts, money transfers, other cash ready for further circulation.
Question. What is passive capital?
Answer. Passive capital characterizes the sources of property (active capital) of a separate organization and includes equity and borrowed capital.
Equity organization, as a legal entity, is generally determined by the value of the property owned by this organization.
The components of equity and debt capital are called the net assets of the organization. They are defined as the difference between the value of the property (active capital) and borrowed capital. Of course, equity capital has a complex structure; its composition depends on the legal form of the organization.
The organization's own capital consists of authorized, additional and reserve capital, retained earnings and target (special) funds.
Borrowed capital represents part of the value of the organization’s property acquired as part of the obligation to return money or valuables equivalent to the value of such property to the supplier or bank, or other lender. As part of borrowed capital, a distinction is made between short-term and long-term borrowed funds.
Long-term borrowed funds are loans and borrowings received by an organization for a period of more than a year, the repayment period of which occurs no earlier than in a year.
Short-term borrowed funds are obligations whose repayment period does not exceed one year. Among these funds, one should highlight current accounts payable, which arises as a result of commercial and other current settlement transactions. This includes: arrears of wages to staff; debt to the budget and extra-budgetary funds for mandatory payments; advances received; advance payment of orders and products; debt to suppliers, etc.
Question. How is the authorized capital formed?
Answer. Authorized capital of a joint stock company is made up of the par value of the company's shares acquired by shareholders.
Promotion is a security that certifies the fact of contribution of a certain amount to the authorized capital of a joint-stock company, giving the right to participate in meetings of shareholders and receive a certain share in the form of dividends (income of the shareholder).
Shares are divided into ordinary (simple) And privileged. The latter can be issued no more than (by value) 10% of the established amount of the authorized capital. Preferred shares give the right to guaranteed income; dividends on them are paid no less than the established amount, usually as a percentage of their nominal value.
Owners of common (non-preferred) shares receive income from them depending on the results of economic activity and the decision of the meeting of shareholders on the amount of net profit allocated for the payment of dividends based on the results of a given reporting year.
The authorized capital of a joint stock company is formed within the time period specified by the charter. Cash, intangible assets, including confidential intellectual property (know-how), fixed assets, and other tangible assets are accepted as payment. In exchange for your contribution to the authorized capital, you can transfer property for use to a joint stock company (i.e., without transferring ownership). Property and other valuables accepted as deposits are valued by agreement of the parties.
The authorized capital is assessed at the par value of the acquired shares. The excess of the value of shares over their par value, the so-called constituent or issue income, is accounted for separately and is used to compensate for the difference resulting from the sale of shares at a cost below their par value. These funds are included in the additional capital created by the enterprise along with the authorized capital.
A joint stock company has the right to increase the size of its authorized capital by increasing the par value of shares or issuing additional shares.
The size of the authorized capital can be reduced by reducing the par value of the shares or by purchasing part of the shares in order to reduce their total number.
Rice. 3. Components of your own and
working capital
Question. How is the authorized capital accounted for?
Answer. The authorized capital of a joint stock company consists of funds contributed by shareholders (participants). It is the collective property of shareholders (participants) and at the same time the property of the joint-stock company as a legal entity. From this point of view, it acts as the equity fund of the joint-stock company. On the other hand, it is the property of each shareholder. Each person's share is determined by the value of the shares he owns.
The authorized capital of a newly created joint-stock company is formed from monetary and material resources provided by shareholders in payment for their block of shares in the amount of the registered authorized capital.
Fixed assets transferred by shareholders into the ownership of the joint-stock company are credited to the authorized capital (as payment for shares) at the initial (market) or residual value agreed with the board, but in the “Fixed Assets” account these items are stated at historical cost.
This operation is formalized by posting:
Debit account 01 “Fixed assets”,
Credit account 75 “Settlements with founders.”
This posting takes into account the cost of fixed assets.
Debit account 75 “Settlements with founders”,
Credit account 02 “Depreciation of fixed assets”.
Table 2
SALE OF SHARES
This posting takes into account the amount of depreciation of transferred fixed assets.
This can be illustrated with an example.
Example: The joint stock company received 13,800 thousand rubles from the sale of its shares. with their declared nominal value of 12,500 thousand rubles. All shares were sold for non-cash funds. In accounting, this operation will be recorded, as shown in table. 2.
Question. How should reserve capital be accounted for?
Answer. The amount of reserve capital and the amount of mandatory contributions to it from net profit are determined by the charter of the joint-stock company. Contributions to the reserve capital cease after it reaches the value provided for by the registered charter.
The formation of other funds in joint-stock companies (list of funds, amounts of deductions, procedure for use) may be provided for in the charter or in the accounting policies of the joint-stock company. If this is not stipulated in the charter or accounting policies, then the creation of such funds is not necessary.
Reserve capital is reduced when funds from it are used to cover balance sheet losses of the reporting year and other legitimate purposes.
Reserve capital is created by business entities as a guarantee of increased liability for their obligations. In joint-stock companies and limited liability companies, the amount of actual profit received is reduced by the amount of reserve capital created.
Question. How is retained earnings accounted for?
Answer. retained earnings– net profit (or part thereof) not distributed in the form of dividends among shareholders (founders) and not used for other purposes. Typically, this part of the profit is used to accumulate the property of a business entity or replenish its working capital in the form of free cash, i.e. ready for a new turn at any moment. Retained earnings can increase from year to year, representing an increase in equity capital based on internal accumulation. Precisely internal, i.e. not brought in from outside, as in cases with authorized or additional capital. In this context, retained earnings are a close cousin of reserve capital. Retained earnings are the result of a deliberate decision of the owners, their voluntary refusal to distribute part of their net profit. In growing, developing joint stock companies, retained earnings over the years take a leading place among the components of equity capital. Its amount is often several times the size of the authorized capital.
Retained earnings of the reporting year are determined as the difference between the credit balance on the “Profit and Loss” account and the debit balance on the “Use of Profit” account. At the end of each reporting year, these accounts are closed by the final accounting entries, and the credit balance on the “Profit and Loss” account is transferred to subaccount No. 1 of the “Retained Earnings (Uncovered Loss)” account. In this case, make the following entries:
Credit account 99 “Profits and losses” (and account No. 99 is closed),
Debit account 99 "Profits and losses",
Credit account 84 “Retained earnings”, subaccount No. 84/2 (and account No. 99 is closed and has no balance).
Question. How are target (special) funds accounted for?
Answer. Target (special) funds are created at the expense of the net profit of a business entity and must serve for certain purposes in accordance with the charter or decision of shareholders and owners. All these funds are part of the net profit that belongs to them, and, in principle, are a type of retained earnings. In other words, this is retained earnings that have a strictly designated purpose. To account for all created special funds at the expense of profits, subaccounts No. 1, 3, 4, 5 of account No. 84 “Retained earnings” (uncovered loss) are used. Links
The use of the concepts of “movement” and “use” in relation to retained earnings should not be misleading. Retained earnings are not spent irrevocably. They constantly contact organizations, changing their form - from monetary to commodity and vice versa. At the same time, the total amount of assets does not change. As a rule, the balance in account 84 “Retained earnings (uncovered loss)” can only increase, indicating the process of self-financing of the organization, the increase in its property compared to the amount of initial investments.
A set of resources owned by an enterprise and used to make a profit.
From an accounting point of view, the structure of active capital is determined by the industry characteristics of the company, its size, and relationships with other market participants. For example, most of the active capital of construction companies consists of land plots (registered as property) and stocks of materials (concrete blocks, building mixtures).
Circulation of active capital in the enterprise
The list of property classified as active capital is reflected in the balance sheet accounts and demonstrates the circulation of funds invested in the business. The company's economic activities transform active capital in four stages.- Cash and non-cash funds that have the greatest liquidity. This form of capital goes to the organization’s current account or cash desk and covers the costs of conducting main and other activities. For example, a research laboratory receives a cash grant to conduct a project and invests the entire amount in the necessary equipment and consumables.
- Material assets necessary for the main activities of the enterprise. A collection of tools, production materials, buildings, stocks of raw materials and semi-finished products that are used to produce finished products. For example, a sewing shop purchases cutting tables, stocks of fabrics and accessories for making clothes.
- Productive form of active capital. The totality of production costs necessary to start the process of manufacturing goods (providing services). The category includes investments in the maintenance and repair of machines, costs for current (work in progress) production. For example, to start a steel rolling machine, the services of a foreman are required to prepare the equipment for the next cycle.
- The commodity expression of active capital is the cost of finished products produced for subsequent shipment or resale. From an accounting point of view, this form of capital refers to current assets. For example, the total volume of furniture produced, which is stored in factory warehouses before shipment to distributors.
Formation of active capital of the enterprise
The components of active capital have a confirmed legal status and are involved in the main activities of the enterprise. The use of assets brings economic benefits in the form of profit, positive business reputation, and investment income. Accounting standards (RAS or IFRS) require active capital to be divided into categories.- Fixed assets of a company are assets with a useful life of one year. Vehicles, industrial buildings, machine tools, unfinished construction projects.
- Intangible assets are legal rights to use unique technologies, property, and land.
- Accounts receivable and company investments are future profits from investing capital in the production of products or the purchase of securities.
- Cash - cash and non-cash resources of the enterprise in bank accounts, at the cash desk, traveler's checks, bills of exchange.