The term "capital" has many different meanings: it can be used both as a certain stock of material values, and as something that combines not only material objects, but also intangible values, such as human abilities, education. Defining capital as a factor of production, economists associate it with the means of production.
Adam Smith defined capital as labor accumulated over time, David Ricardo argued that capital is a means of production.
Capital consists of durable goods created by the economic system for the reproduction of other goods. These benefits include a large number of machines, roads, computers, trucks, buildings, and more.
Capital concept
The views on capital are different, but they are all united in one thing: capital is identified with the ability to generate income. It can be defined as an investment that is used in the production of goods and services and their delivery to the consumer.
In a broad sense, capital is everything that is capable of generating income, or resources used by a person to produce various goods and services.
In a narrow sense, capital is a source of income invested in a business, working as a means of production, that is, it is physical capital.
There are two main forms of physical capital: fixed and circulating.
Main capital
Fixed capital is a portion of a productive capital whose value is transferred in portions to a manufactured product over a certain number of periods.
This type of capital can include a part of the advanced capital spent on the construction of buildings and structures, the purchase of machinery and equipment - these are tangible assets. Fixed capital also includes intangible assets - patents, licenses, copyrights, etc.
The fixed capital is returned to the owner in cash after the sale of the goods in the volume in which its value was transferred to the manufactured product. That is, between the moment of receipt and return of the invested funds, there can be a fairly large gap. This must be taken into account when deciding to purchase expensive equipment. The problem is also connected with the fact that fixed capital has a sign of not only physical, but also obsolescence.
Fixed capital costs are written off in installments gradually. In the same amount as the write-off, a share of the value is deducted from the carrying amount of the assets.
Working capital
Working capital is an element of productive capital. Its value is transferred to the manufactured goods in full and returned back to its owner in cash immediately after the sale of the goods, in whose price the value of the working capital was incorporated.
Working capital refers to the share of advanced capital that was spent on the purchase of raw materials, fuel, payment for electricity, auxiliary materials, labor. It also includes cash.
The sources of capital are considered to be profit, bank loans, investments, funds of the founder, etc.
