The composition of working capital
Quite a lot of interest in the concept, composition, structure of working capital. Because, having an idea about all this is much easier to navigate in the financial statements. And if you want to learn more about what the working capital is, what they consist of and what they are referred to, then the information below will be very useful for you.
What is working capital
Current assets of an enterprise are cash (assets) that have been advanced to revolving funds. It is important to note that they are renewed with a certain regularity (depending on the activity and production capacity) and thus ensure the success of the enterprise. At the same time, the essence of working capital is always determined solely by their economic role, as well as the need to ensure the reproduction process, which includes not only the production process, but also the process of circulation.
What is part of the working capital
The composition, working capital is divided into two very significant components:
- funds circulation;
- revolving funds.
The circulation of funds represents the funds associated with the maintenance of the process of circulation of manufactured products.
- manufactured products stored directly in the warehouse of the enterprise;
- finished products in transit;
- finished products, the shipment of which has already been made to suppliers and customers;
- funds transferred for products to the current account by buyers, as well as companies on hand;
All this is included in the circulation funds, but since current assets also include working capital, they should also be considered in more detail. They are objects of labor, the service life of which is not more than 1 year and which participate in the pricing of products produced at the enterprise and transfer their value to it entirely.
- industrial stocks, including materials, purchased semi-finished products, raw materials, energy, fuel;
- Work in progress (semi-finished products made directly on their own equipment and from their own raw materials);
- expenses of future periods (not too substantial elements of revolving funds, which include the costs of processing and mastering a new batch of products,which is made in a given period (quarter or year), but at the same time they refer to products of a future period).
With regard to the structure of working capital, it is diverse, but it always shows the proportion of individual elements in the total amount of funds. It depends on the industry in which the company operates, as well as on other factors, we list some of them:
- quality of finished products;
- specifics of the enterprise;
- accelerating scientific and technological progress and others;
- levels of concentration, co-operation, specialization and combination of production.
As can be seen, the composition and structure of working capital are very diverse. But knowing what they are and include, you will be able to better understand the accounting documentation and reporting, and you will not have to ask other people to clarify it to you.