The meaning of fixed capital is depicted in the following chart.Fixed capital is a concept in economics and accounting, first theoretically analyzed in some depth by the economist David Ricardo.In problem solving, by convention, unless there is an indication to the contrary, we assume that capital accounts are fluctuating capital accounts.Since all the transactions which affect the capital accounts are dealt with using the same capital account, we can say that Capital accounts under the fluctuating capital method are affected by transactions of both Capital Nature as well as Revenue Nature. By profits we mean all the appropriations of profits that find their way into the capital account, like interest on capital, salary to partner, commission to partner, share of profits.This thinking can be applied to SMBs as well as to organizations in the non-profit and governmental sectors.Specific fixed asset policies and procedures can vary from one organization to another according to size, type and the nature of its operations.Depending upon the size of an organization, there can be numerous people who will be both impacted by the fixed asset policies and responsible for different portions of their implementation.The first difference we can notice, between accounting for sole proprietary form of business organisation and partnership form of business organisation is with regard to capital and its related aspects.
It is usually present in the form of fixed assets like land, building, plant, machinery, etc.
Future articles in this series will expand upon and provide examples of specific fixed asset policies and the procedures.
Effective fixed asset management preserves the value and utility of an organization’s fixed assets and deploys those assets in a manner that creates value (returns in excess of the cost of capital) for the organization’s stakeholders.
It refers to any kind of real or physical capital (fixed asset) that is not used up in the production of a product.
It contrasts with circulating capital such as raw materials, operating expenses and the like.
If the organisation intends to obtain the information relating to the Capital account balance on account of Capital natured transactions and Revenue Natured transactions separately, a separate Capital accounts needs to be maintained to record the revenue natured transactions.