Circulation funds - funds of a company that are in the sphere of circulation. They do not participate in the formation of value, but at the same time they are carriers of the created value.
The structure of the company's working capital
Circulation funds are included in the structure of the company's working capital. The latter are funds that have been advanced to ensure a smooth production process and product sales. Along with circulation funds, they include production assets. Among them are raw materials, semi-finished products, fuel, labor tools, etc.
In economic analysis, the concept of the structure of working capital is used. It is the ratio between individual elements (circulation funds and production assets) as a percentage of the total. So, for example, in mechanical engineering, 2/3 of the circulating capital is in the sphere of production and a smaller part (1/3) - in the sphere of circulation.
Among the factors that affect the structure of circulating assets, there are the technical level of production, the degree of specialization (or cooperation) of production, the geographical location of the enterprise, the composition of materials and the duration of the production cycle. Also important are the conditions for the sale of products and the system of commodity circulation, the organization of marketing and sales policy.
Circulating production assets differ from circulation funds in that they are completely consumed in the production process and transfer their own value to the product. The funds of circulation are not directly involved in the process of production and the formation of value, but are its carriers and are associated with the process of circulation of goods.
After the end of the production cycle, the cost of working capital is reimbursed to the company as part of revenue, which is then again used to organize the production process.
Classification of circulation funds
In the most general form, there are two types of circulation funds - finished products and money, which are involved in the company's turnover. The ratio between them is approximately 1: 1.
Finished products in relation to circulation funds include only those that are in warehouses and meet technical conditions, as well as that are shipped (on the way). The main difference between these products is that they have not yet been paid for by the buyer.
Among the so-called goods in transit, there are three main groups:
- goods for which the due date has not come;
- goods for which payment is overdue;
- goods in custody of the buyer.
In this case, money includes only those that are in the cash desk and in bank accounts, as well as those that are in pending settlements with customers (accounts receivable).
Circulation funds can be classified according to the sources of formation. Distinguish between those that are carried out on their own and borrowed funds.
According to the specifics of planning, there is a distinction between standardized and non-standardized circulation funds.
