Fixed and Fluctuating Capital in Commerce

Fixed capital and fluctuating capital are two types of capital that are used in business operations. Understanding the difference between the two is important for business owners to make informed decisions about their investments.

Fixed Capital

Fixed capital is the capital that is invested in long-term assets that are used in the production process and are not easily convertible into cash. This type of capital is used to purchase fixed assets such as land, buildings, machinery, and equipment. The investment made in fixed capital is not expected to be recovered in the short term. It is a long-term investment that is expected to generate returns over a period of time.

Features of Fixed Capital

Some of the key features of fixed capital are as follows:

- Long-term investment: Fixed capital is invested in long-term assets that are not easily convertible into cash.
- Non-circulating capital: Fixed capital is not circulated in the market and is used in the production process.
- High value: Fixed capital investments are generally high-value investments that require a substantial amount of capital.
- Depreciation: Fixed capital assets lose their value over time due to wear and tear and depreciation.

Fluctuating Capital

Fluctuating capital is the capital that is invested in short-term assets that are easily convertible into cash. This type of capital is used to finance the day-to-day operations of the business such as inventory, accounts receivables, and accounts payables. Fluctuating capital is also known as working capital.

Features of Fluctuating Capital

Some of the key features of fluctuating capital are as follows:

- Short-term investment: Fluctuating capital is invested in short-term assets that are easily convertible into cash.
- Circulating capital: Fluctuating capital is circulated in the market and is used to finance the day-to-day operations of the business.
- Low value: Fluctuating capital investments are generally low-value investments that require a relatively small amount of capital.
- No depreciation: Fluctuating capital assets do not lose their value over time.

Conclusion

In conclusion, fixed capital and fluctuating capital are two types of capital that are used in business operations. Fixed capital is invested in long-term assets that are used in the production process, while fluctuating capital is invested in short-term assets that are easily convertible into cash and are used to finance the day-to-day operations of the business. Understanding the difference between the two is important for business owners to make informed decisions about their investments.

Fixed capital means permanant capital
in this method we only add or deduct permanant additions and drawings of capital respectively

incase of fluctuating capital there will be no such concept.
all the transactions will effect capital such as interest on capital, drawings, interest on drawings etc