Question

Funds used to purchase raw materials is a part of ________
(fixed capital/working capital)

Hint:

Working capital ensures that a business has enough liquidity to cover short-term expenses, while fixed capital is used for long-term investment in assets.

Answer 1

Step 1: Understanding working capital.
Working capital refers to the short-term funds required to manage day-to-day operations of a business. It includes the money needed to purchase raw materials, pay wages, and cover other operational expenses.
Step 2: Difference between working capital and fixed capital.
Fixed capital refers to long-term investments in assets like machinery, buildings, or land, which are not easily converted into cash. In contrast, funds used for purchasing raw materials are classified as working capital, as they are used in the ongoing production process.
Step 3: Conclusion.
Funds used to purchase raw materials are considered part of working capital, which is essential for the day-to-day operations of a business.