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Financial Terms: Financial Capital

2011/1/8 13:22:00 33

What is financial capital?

Financial capital refers to the monetary capital invested by an enterprise owner in an enterprise. Its value is expressed in terms of the quantity of money.

therefore

The same as the net assets in traditional accounting.

The corresponding physical capital refers to the physical assets of the enterprise, reflecting the actual production capacity or operation of the enterprise.

ability

And the production and operation capacity of an enterprise is usually expressed in terms of the quantity of products or services produced by a certain period of time.

financial capital maintenance

Under the condition of continuous inflation, capital preservation generates two kinds of capital preservation, namely financial capital preservation and physical capital.

Preservation

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According to the concept of financial capital preservation, only the amount of net assets at the end of the current period of the enterprise deducts the investment of the current owners and the allocation to the owners, and the excess amount is the current income when the amount of the initial net assets exceeds the current period.

The measurement attribute of financial capital preservation is generally based on historical cost. The unit of measurement can be used in both nominal and fixed currency (i.e. general purchasing power) currency.

However, the adoption of historical cost / nominal currency accounting is the practice of traditional accounting. It does not consider the effect of price rise on capital purchasing power. Only the amount of depreciated original capital is preserved, and the recognized profits represent the increase of nominal money capital in this period.

Using historical cost / constant currency accounting, the influence of inflation on capital purchasing power is considered, and the purchasing power of the original capital is maintained. The confirmed profit represents the increase of purchasing power in this period.