In business accounting everything that you see is called a fixed capital asset. When referring to fixed capital assets, there are two types that are most commonly thought of as fixed capitals: plant and equipment and inventory. In accounting, fixed capital represents any type of tangible, material asset used repeatedly by the manufacturing process of a specific product over an extended period of time. In economics, fixed cap capital is a kind of fixed wealth good that as an asset exists as a physical, material asset that as a means of production is not fully consumed or durable immediately.
With business accounting it is important to identify what is the fixed capital investment. As stated previously, this is the investment in human capital and material assets that do not depreciate in value as the market price fluctuates. An example of what is the fixed capital investment would be a plant and equipment plant. These types of assets do not depreciate in value as the stock market fluctuates in value. Fixed capital does not include the goodwill of the business or the debts of the business owner.
There are many different forms of fixed capital. Some of these include fixed assets that represent ownership interest in plant and equipment, construction and renovation of fixed assets such as buildings and structures, and inventory and accounts receivable. Another form of fixed capital investment is the lease of fixed assets. The lease of fixed assets refers to the right to use a specific asset for a specific period of time. The capital received during the period of the lease is equal to the total value of the asset at the date of the lease.
Many businesses throughout the United States have a significant amount of fixed assets. These assets consist of machinery, building and construction equipment, furniture and supplies, and inventory. All of these assets are fixed in nature; however, they are not all fixed in location. In some cases, the fixed assets may be located overseas or on a non-localized scale. A company’s fixed assets do not necessarily reflect its fixed income or profits. In fact, if the fixed assets were sold, the owners of the business would have to absorb the loss.
An important concept to understand is that fixed assets do not depreciate in value. These assets will continue to retain their value throughout the duration of the investment. However, this is not the same with variable capital. Variable capital represents a potential loss in value because of changes in rates. Many business owners make the mistake of treating the variable component of capital as if it were a fixed component of capital.
If you are in the process of planning for your business’s finances, the first question that you need to answer is “what is the fixed capital?” The next step you will need to take is to determine which category of fixed assets you are going to want included in your balance sheet. You will need to determine how much of your capital assets are fixed and which ones are variable. This will help you to better understand your needs when it comes to what is the fixed capital?
One type of fixed asset is the inventory you own. You have some fixed capital in this category because the value of the inventory will not decrease over time. Your fixed assets in this area are not influenced by current market conditions. What is the fixed capital analysis for this asset?
The final type of fixed asset that you must consider is your plant and equipment. In this area of your balance sheet, what is the fixed capital? Your fixed assets in this area should consist of your plant and equipment, machinery, buildings, and such. This will help you keep your inventory and manufacturing costs down and at a reasonable level so that you do not lose your overall profit margin.